Myers Industries Inc (MYE) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Myers Industries 2011 Fourth Quarter and Year-end 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, Miss Monica Vinay, Director of Investor Relations. Thank you. Miss Vinay, you may begin.

Thank you, Jackie.

Good morning. Welcome to Myers Industries 2011 Fourth Quarter and Full-year 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; 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 fourth quarter and full year of 2011. If you have yet -- if you have not yet received a copy of the release, you can access it on our website at www.MyersIndustries.com under the Investor Relations tab.

This call is also being audio webcast on our website and will be archived there along with a transcript of the call shortly after this 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 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 [forth] 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?

Thank you, Monica, and good morning. It's a pleasure to have all of you with us.

I'm going to begin by making a few comments regarding our achievements in 2011. Then I'll turn the call over to Don, who will review the financial results for the quarter and the year. And as noted above, our COO, David Knowles, is also with us today to answer any questions around our operations.

As we look back at 2011, it was a year of solid progress for Myers Industries.

We ended 2011 on an even higher note, with fourth quarter adjusted EPS of $0.19 compared with a fourth quarter of 2010 adjusted EPS of $0.12.

For the full year 2011, we delivered adjusted earnings per share of $0.67 compared to $0.37 in 2010. That's an increase of 81%.

Our strong performance in 2011 was a result of a team effort by all of our employees to execute our strategy centered on customer dedication, innovation, Operations Excellence, organization development, and financial strength.

In addition to our earnings growth, this focus on our strategic principles led to the following achievements in 2011.

We introduced more than 20 new products and services in 2011, with approximately 3% of our total sales in 2011 coming from products, services, or markets developed in the last three years.

We expanded our gross margin percentage to 26.2% in 2011 compared to 22.3% in 2010 despite an average increase in resin costs of 13%.

We realized productivity gains of approximately $14 million resulting from the Operations Excellence programs carried out in each of our manufacturing segments.

We increased our utilization of recycled, reprocessed, and alternative resins in our Lawn and Garden and Material Handling segments in order to combat rising resin costs during the year.

We implemented improved pricing processes and mechanisms that successfully offset considerable increases in raw material costs throughout the year.

We completed 85% of our Model Transformation project in our Distribution segment, which will increase on-time delivery to customers, lower the SG&A costs, and decrease inventory. In 2012, we will complete the project and reinvest some of the savings into incremental sales resources in order to build a stronger foundation for future sales growth.

We continued to execute the Operations Turnaround plan that we implemented in our Lawn and Garden segment in 2010. It has led to improved results during difficult industry conditions.

We continue our commitment to returning cash to shareholders. Our strong cash flow generation enabled us to increase our dividend by 8%. We spent $21 million to buy back 5.7% of our common stock, and we reduced debt by $9.7 million. Our strong balance sheet enables us to take advantage of future opportunities that will create additional value for our shareholders.

In summary, we believe that we are delivering results by our strategic principles, and we remain committed to building upon the improvements that we made in 2011. We believe the foundation that we established for continuous improvement will positively benefit results in 2012 and beyond.

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

Thanks, John. Good morning, everyone.

I will comment first on our consolidated results for the quarter and then for the year. After that, I will review the results by business segment.

Net sales in the first -- in the fourth quarter increased 3.8% to $195.4 million compared to $188.2 million in the fourth quarter of 2010.

Increased pricing implemented to offset higher raw material costs, combined with sales of new products and services and sales to new customers, produced most of the increase during the quarter.

The gross margin increased to 28% in fourth quarter compared to 23.5% in the fourth quarter of 2010.

The Company's focus on Operations Excellence initiatives centered on decreasing manufacturing costs and offsetting higher raw material costs through better pricing mechanisms, and the use of lower costs and alternative resins was a major contributor to the increase. Sales of higher-margin new products also played a part in the margin expansion.

SG&A expenses in the fourth quarter were $44.6 million compared to $108.6 million in the fourth of 2010. You may recall that in the fourth quarter of last year, we took a goodwill impairment charge of $72 million in our Lawn and Garden segment. If you exclude the impairment charge, SG&A in 2010 was $36.6 million. The increase in SG&A quarter over quarter was driven primarily by higher variable selling costs of approximately $5 million. Additionally, there was a net increase in restructuring costs of $1 million.

Net income in the fourth quarter of 2011 was $5.9 million, or $0.18 per share, compared to a net loss of $50.5 million, or $1.43 per share, in the fourth quarter of 2010.

Net income in the fourth quarter of 2011 included $1.4 million of special pretax items while net income in the fourth quarter of 2010 included $69 million of special pretax items, including the $72 million goodwill impairment charge mentioned earlier.

Details of these special items can be found on the reconciliation of non-GAAP financial measures included in the earnings release issued earlier this morning.

If you adjust for the special items that I just mentioned, earnings per share was $0.19 in the fourth quarter of this year compared to $0.12 in the fourth quarter of 2010.

For the full year 2011, net sales were $755.7 million compared to $737.6 million in 2010, an increase of 2.4%.

As John highlighted, the gross margin expanded to 26.2% in 2011 compared to 22.3% in 2010. Through successful execution of our Operations Excellence initiatives, we were able to lower costs and offset substantial increases in raw material costs that occurred during the year. A favorable product and customer mix also played an important role in the margin expansion.

SG&A expenses for the full year 2011 were $159.9 million compared to $212.2 million in 2010. If you would again exclude the $72 million goodwill impairment charge that we took in 2010, SG&A expenses in 2010 were $140.2 million. The increase in SG&A expenses in 2011 compared to 2010 was partially due to an increase of approximately $8 million in higher variable selling and distribution costs, including freight, an increase of almost $1 million in bad debt expense, an increase of $3 million in employee-related expenses, and an increase in miscellaneous general and administrative costs of about $3 million. Additionally, the net increase in restructuring costs for the year was $3 million.

Net income for the full year was $24.5 million, or $0.71 per share, compared to a net loss in 2010 of $42.8 million, or $1.21 per share.

Net income in 2011 included $4.6 million of special pretax items, while net income for 2010 included $71.3 million of special pretax items. Details of the special items for both years can be found on the reconciliation of non-GAAP financial measures included in the earnings release issued earlier this morning.

If you adjust for these special items, earnings per share was $0.67 for the full year 2011 compared to $0.37 in 2010.

Capital expenditures totaled $21.9 million for the 12 months ended December 31, 2011. In 2011, 34% of the expenditures were for growth projects. In 2012, we estimate that capital expenditures will be approximately $30 million and that the percent of growth-oriented projects will increase to about 50%.

In 2011, we deployed higher working capital to grow the business, which resulted in a use of cash during the year. We expect the same to be the case in 2012.

The Company spent $21 million in 2011 to repurchase 2 million shares of stock. The average price paid for the stock was $10.47, and it was repurchased under a Rule 10B51 plan which we adopted in June of 2011.

Cash flow provided by operations for the 12 months ended December 31, 2011 was $64.2 million compared to $45.6 million in 2010.

Because the Company recognized net favorable income tax adjustments of $3.8 million in the third quarter of 2011, our effective tax rate for the year was unusually low at 27.3%. In 2012, we anticipate a more normalized effective rate of about 38% to 39%.

At December 31, 2011, debt net of cash was $67.2 million compared to $77.4 million at the end of the third quarter. In 2011, the Company reduced debt by $9.7 million.

Now, let's turn to our business segments and their performance. Results 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 the Material Handling segment, net sales for the fourth quarter decreased 13% to $57 million compared with $65.5 million in 2010. An $8.2 million lease sale that occurred in 2010 but did not repeat in 2011 accounted for the majority of the decline in sales.

Adjusted income before taxes in the Material Handling segment was $6.6 million in the fourth quarter of 2011 compared to $6.9 million in 2010. Lower manufacturing costs resulting from the Company's Operations Excellence initiatives, as well as a favorable customer and product mix, partially offset the margin decrease from the decline in sales.

Net sales in the fourth quarter in the Lawn and Garden segment increased 9.5% to $65.1 million as compared to $59.5 million in the fourth quarter of 2010 as customers took advantage of the segment's improved operating and delivery capabilities that pulled forward approximately 3 million of orders that would normally take place in the first quarter of 2012.

Adjusted income before taxes in the Lawn and Garden segment was $3.7 million compared to $800,000 in the fourth quarter of 2010. This segment was able to generate an increase in income before taxes as a result of the higher sales and the continued successful implementation and execution of the Operations Turnaround plan put into place in the second half of 2010.

Net sales in the Distribution segment increased 2.1% to $47.2 million in the fourth quarter compared to $46.3 million in the fourth quarter of 2010. During the quarter, this segment was able to offset lower unit volumes arising from a decrease in miles driven, with sales from innovative new products and services, and by increasing its customer base.

Adjusted income before taxes in the Distribution segment was $4.7 million for the fourth quarter of 2011 compared to $4.3 million in 2010.

The income generated by the increased sales during the quarter was partially offset by higher-than-anticipated variable selling expenses and freight.

Net sales in the Engineered Products segment were $31.1 million compared to $22.6 million in the fourth quarter of 2010, an increase of 37.6%.

Sales increased during the quarter in most markets within the segment but especially in our rubber processing business, which generated very strong contract manufacturing sales.

Adjusted income before taxes in the Engineered Products segment was $2.9 million in the fourth quarter of 2011 compared to $1.1 million in 2010. The significant sales increase drove most of the improvement in the pretax income.

Now, let's turn to the full-year results by segment.

For the year, the Material Handling segment increased sales 1.6% to $261.8 million. Pricing increases taken to offset higher raw material costs combined with strong sales in the agricultural, automotive, industrial, and manufacturing markets more than offset $37.6 million in lower-margin custom pallet sales that occurred in 2010 but did not take place in 2011.

Adjusted income before taxes in 2011 for the Material Handling segment was $34.1 million compared to $23.3 million in 2010. Increased sales volume and an unusually favorable customer mix, lower manufacturing costs and higher prices, which offset increased raw material costs, produced higher gross margins, which led to most of the increase in pretax income.

For the year, net sales in the Lawn and Garden segment were $217.1 million, a decrease of 3% compared to 2010. The decrease in net sales was primarily due to lower sales volumes, reflecting the prolonged effect of a weak 2011 spring season resulting from poor weather conditions.

Pricing actions taken to offset higher raw material costs partially offset the [lower sales volume].

Adjusted income before taxes in 2011 in our Lawn and Garden segment was $4.6 million compared to a loss of $2.2 million in 2010. The segment successfully offset the margin loss from lower sales volumes, which led to the improved operating results year over year.

For the full year, net sales in the Distribution segment were $183.7 million compared to $174.9 million in 2010, an increase of 5%. Throughout the year, most of the increase in sales was driven by new product and service sales, as well as a broadened customer base.

In 2011, adjusted income before taxes in the Distribution segment was $17 million compared to $15.8 million in 2010. The income generated by the increased sales during the year was partially offset by higher variable selling and distribution expenses.

For the full year, net sales in the Engineered Products segment increased 11% to $116.2 million. Strong demand for our products in the recreational vehicle, marine, and custom markets, as well as sales of new products, caused most of the increase.

Adjusted income before taxes in 2011 in the Engineered Products segment increased 17.3% to $11.5 million compared to $9.8 million in 2010. The increase in sales, combined with lower manufacturing costs, drove most of the increase in (inaudible).

That concludes the financial review. I'll now turn the call back over to John. Thanks.

Thanks, Don.

As demonstrated in 2011, we have established a strong foundation for increasing value to our shareholders. As we look forward to 2012, we anticipate the following --

Sales generated from our innovation initiatives will continue to benefit our overall sales performance in 2012. The target is to have new products and services contribute more than 5% of our revenue this year.

We will improve upon the increases in productivity, quality, and delivery performance that we made in 2011 to make every effort to consistently provide the highest service and best products in the industries in which we operate.

We will continue to increase our utilization of reprocessed, recycled, and alternative resins in order to further reduce our exposure to fluctuating raw material costs and increase our sustainability.

We will complete the execution of the profit improvement plans that we implemented in our Lawn and Garden segment in 2010. We will complete the Distribution Model Transformation from 33 branches to 4 distribution centers that we implemented in 2010 in our Distribution segment.

Our cash flow should remain strong. As Don mentioned, we will be increasing our capital expenditures to maintain our capital stock and take advantage of high-return growth projects.

We will be increasing our IT spending to modernize our decision tools and capabilities over the next two years. In 2012, we will incur approximately $2.5 million in additional costs related to that project.

We will continue to return cash to our shareholders through dividends and timely share repurchases when appropriate.

Looking to the first quarter, we expect our positive momentum to continue but recognize that there will be combating -- we will be combating a few headwinds.

We don't expect the unusually strong mix that we saw in our Material Handling segment during most of 2011 to continue.

While we plan for an improved year in Lawn and Garden, we believe that the hangover of inventory resulting from the weak spring season last year, as well as the strong delivery of orders in Q4, may impact some of our sales.

Despite these headwinds, particularly in the first quarter, we anticipate that 2012 will continue to show the benefits of our efforts in 2011.

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

Thank you, John.

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

Thank you. (Operator Instructions)

Chris Manuel, Wells Fargo Securities.

A couple questions for you.

First, let's start with could you give us -- maybe put some number around where you feel volumes were across each of the segments? I know you guys gave some commentary about whether it was better or worse or some things of that nature, but could you -- do you have any numbers that you could share with us to give us a sense how each of those were doing organically?

So, Chris, just so I understand, you want to understand how each one of the businesses are doing purely from an organic standpoint or what they're doing year -- or quarter over quarter?

Well, on a year over year, what's the organic piece. So sometimes resin can get in there and cause -- or some different components in there that can skew things. I'm trying to understand what the -- how you think the business performed 4Q organically.

And then the next question is going to be let's talk a little bit about maybe what '12 looks like.

Okay, well, maybe I should --

Yes, David, why don't you handle that one?

Yes, this is David, Chris. Let me jump in and talk about that.

Of course, in the fourth quarter now, our Material Handling business was down year over year. Remember we had the sale of that lease in the fourth quarter of last year. I can come back to that if you like and talk about kind of what -- how that fits in the overall scheme of things.

Our Lawn and Garden business has -- was down slightly in the fourth quarter, though our pricing and revenue in the fourth quarter was certainly up and improved.

Distribution business was up slightly in the fourth quarter, and we had a very strong performance in our Engineered Products segment in the fourth quarter. Engineered Products' strength in the fourth quarter was driven by a contract manufacturing contract that we have in our patch rubber business and by strengthening performance in our WEK business, which serves the transplant automotive market.

And overall for the year last year, all of our businesses were up with the exception of Lawn and Garden. I think we've spoken fairly extensively about the weak spring in Lawn and Garden, which dragged our volumes down in that -- volumes down for the full year in Lawn and Garden probably about 10% year over year. The other businesses were up well -- Material Handling up about 10%, Distribution up about 5%, Engineered Products up about 9% on a full-year basis in volume.

If I could talk about kind of how we think about the coming year in our planning process, I'd sort of skip to kind of the way that we communicate about how we think about the business.

We have set ourselves on this innovation initiative which we are looking to to help us drive growth organically in our businesses over the years, and what we've set as sort of a corporate goal is growing our business at about 1.5 times GDP or better, and certainly, that's kind of the goal that we're focused on as we look at 2012 and beyond.

If you -- if we sort of step back and look at -- we track indexes for each of our business(es).

Starting with the economy, we don't expect a lot of help out of the economy in our growth this year, so we think that any growth that we drive and generate, we're certainly looking at relying more on kind of the new product development and initiative that we have inside the business.

Kind of going business by business, in our Material Handling business, the Material Handling index that we look at has been softening as we went through 2011, and I think the index is now into the single-digit growth kind of projection for 2012, and I think that's sort of consistent with what we see in 2012.

And, remember, if I could step back on Material Handling, we had this lease sale in the fourth quarter of 2011. We had underwritten a lease for one of our strategic customers at the beginning of 2010 who was investing their capital to grow their business. We were able to sell that lease to a third party at the end of 2010, which actually set up the mechanics for using third parties to help our customers finance their product purchases going forward.

That mechanism really is what allowed us to generate very good results and strength in 2011 and what we call this unusually favorable sales mix in Material Handling in 2011, and we've certainly benefited from that.

We don't expect that unusually favorable mix to continue. Though we expect to have good sales in that segment going forward, it just won't be quite as strong because of what we're able to sort of liberate through that third party financing process at the end of 2010 and into 2011.

Material handling now, as we sort of look at not having that unusually favorable mix going forward, our plan and what that business has cast itself with is offsetting that with our new product process, and so we're going to be relying on our new product development process to really drive that business this year and as a result kind of these different offsetting things, we're expecting some modest improvement in that business in 2012.

If I move to Lawn and Garden, really two indexes that we look at in that business.

For the nursery part of that business, which I think we've said in the past is roughly 20% of its sales, we look at housing starts and that certainly looks to be favorable, though probably not have a huge impact on the top line in that business.

The greenhouse part of that business is more personal consumption-driven, and those indexes, as we've kind of come into this planning period, were certainly weak.

We expect overall in Lawn and Garden we won't have -- I think we talked about 2011 as the weakest spring season in a long period of time, over 20 years. We certainly don't expect that to happen this year, though we'll have to sort of watch. It's so far been a reasonably warm winter season, but because of the inventory overhang that that weakness generated in 2011, actually, our view of 2012 is it's going to start slow, but we're expecting to continue our path of improving that business on a year-over-year basis.

Engineered Products -- We've had some strength in our WEK business because of the recovery in the transplant automotive, and we expect that recovery to continue into the first part of the year and then start to moderate as the year goes forward. So that business should continue to have strength.

Our Ameri-Kart business has introduced some new products, which we think is going to help us offset weakness in the RV market.

And then our patch rubber business is sort of continuing with some contract manufacturing as they're developing kind of internal growth and new product sales in that market.

So Engineered Products, again, we expect to -- we expect to improve but a number of kind of different puts and takes in that business.

Distribution -- We use both the replacement tire sales index and the miles driven index, and as we came through the end of 2011, we saw those indexes weakening and actually dipping into negative territory, so we didn't expect a lot out of the market in our planning process for 2011. Any growth we get is going to come from these initiatives that we've put in place, and we've had some good success in the Distribution business in the latter part of 2011 and our new product introduction process.

Our initiative, I think John mentioned, that we've been making progress with the innovative initiative developing roughly 3% of our sales in 2011, and we sort of target the -- notched that up in 2012, more toward the 5% range.

Okay. And that's very helpful, and I really appreciate all the color.

If we could go back to the Lawn and Garden business for one second, you're about, if I remember -- if memory serves, you're about halfway through what you indicated would be a couple-year plan as you're working through the improvement process there. Kind of, if you don't mind, refresh us on what you think the objectives are. Where do you think this business can be in a few years? Is it an upper-single-digit margin? Or how would you characterize you're along the path and where do you think the destination can be?

Well, this is David. I'll take that one again.

I would say, Chris, you're right. We are a little more than halfway through the plan that we put in place. We had a terrible second quarter in 2010, and we've put a plan in place to sort of drive profit improvement and a more stable kind of delivery results in that business.

And if you recall, that really focused early on in driving consistency with how we were dealing with our customers. We spent a lot of effort driving consistency in how we deliver to our customers. We shortened the order to delivery cycle and have made terrific progress with that. Our numbers and metrics continue to improve in how we're serving our customers.

Second was driving how we address margin in that business, and two major elements of that. The first was what we call our pricing mechanics, and I might address that one. It's been referred to as sales contracts, I think, a couple of times. We don't really have formal contracts with those customers in that market, so we kind of speak of it more as the pricing mechanics in that business.

The biggest thing we did in Lawn and Garden to address that was to shorten this window from when we take an order to when we produce it, and then ultimately, we have a more stable margin against which we're delivering when we ultimately deliver to that customer.

The second thing that we did in pricing was to develop kind of a consistent strategy in the market. We've had very volatile raw materials over the last few years, and what we've said to our customers is that our goal in this business is to drive profit improvement through productivity and new product and growth of our position in the market.

With respect to raw material costs, we are going to pass changing raw material costs through to the market, and in 2011, I think we were very consistent in doing that. We had two price spikes, one in January and one in May. We passed those through to the market, and we also passed price reductions through to the market as these price spikes abated. And what we're trying to do is develop a very consistent way that we deal with our customers on that. That was kind of phase two in margin management.

The other part of margin management was driving raw material costs and substituting alternative materials for prime materials, and we've made some very strong strides in doing that, though we have continued efforts in our Operations Excellence program to continue to drive that.

We're through a lot of that. We're getting back toward what we look at as historical margins in that business. I think we're going to continue to drive ourselves toward historical margins in that business, and then the next wave will be focusing on the marketplace and how we can bring innovation, better service, and all of that to ultimately driving growth, maybe some share recapture in the marketplace so that we can drive ourselves, hopefully, beyond what have been traditional margins that we've been able to achieve in that market.

Okay, that's helpful. I've got a couple other questions, but I'll jump back in the queue. Thank you.

Thank you.

Thank you. (Operator Instructions)

Gary Farber, CL King.

We just had a few questions, one on just input costs. Do you see any benefits? I mean natural gas prices are fairly low. Do you think that's going to help you at all in your cost of goods sold or just anywhere else in your business?

Gary, yes, in some cases, natural gas does help. In other cases, a lot of what we buy is cracked from oil and so it doesn't necessarily help.

Now, we're currently trying to understand exactly where it's going, where ethane is going. At some point in time, we should have a little better handle on what that's going to do to us.

But more importantly, one of the things that we've done for the last several years, as you know, is we've made sure that price increases are passed on, and I think that there's concern, obviously, for increased costs of raw materials, but at the same time, we've made sure that we are working with our customers to ensure that those cost increases are passed on.

David, do you have anything you want to add to that or--?

Just maybe one sort of fact behind that.

If you look at our raw material mix, it's dominated by polypropylene and polyethylene and roughly evenly split between the two. Natural gas tends to be the feedstock more for polyethylene than polypropylene, and propylene tends to come off of -- more off of the refinery, and oil is a feedstock. So we're not seeing much benefit from this kind of shale gas revolution here in the States on the propylene side. We're seeing -- we see more aggressive increases in costs on polypropylene and more moderate increases in costs in polyethylene and maybe because the feedstock is a more competitive feedstock here in the US.

And would you see your gross margins, because you had a dramatic rise off from where they were, would you see them sort of marginal improvement to stable in the short term?

Here's the way I look at it is we're trying to manage our price-to-raw material cost so that, as I said earlier, pass volatility and raw materials on into the marketplace.

Our goal is that on a broader basis, our margin's more stable, so we have a goal to improve our margins over time, and on an annual basis, you ought to see that as stable and improving.

On a quarterly basis, because of the timing of these price spikes and the pricing actions that we take on the marketplace, they shift from time to time. I think we saw some of that in the fourth quarter. But I think on a year-over-year basis, our goal is to be more stable in our margin and to do our work on productivity improvement, alternative material introduction into the business, and new product introduction at higher margins that can help us kind of grow our margin on an annual basis year over year.

Great, thanks. And then just on your SG&A, it sort of varied, it seems like, between about 19% and 21%. Given the demand picture you've painted for 2012, do you see that SG&A as a percentage of revenue sort of turning to the lower end of it, towards the middle? I mean how much leverage can you get there?

Gary, it's Don. I would say that our SG&A spending is going to trend to the middle of that range that you just talked about. As we described earlier on the call, we are seeing our variable selling expenses go up. A lot of that's being driven by freight. We're just seeing an overall increase in freight expenses throughout the company.

We also had some anomalies of SG&A spending, as well, that we detailed, so I would say that we're trending right around that 20% range.

Great. Okay, great. And then just one last one. Can you discuss how you see the competitive environment, if any particular segments you want to highlight, what's going on right now?

Go ahead, Dave.

Okay. I would say that right now we don't see any major changes in the competitive environment.

No, I was going to say, Gary, I don't think there's any major changes that we see. I think a lot of people have hunkered down over the last couple of years. We haven't seen any major competitors making acquisitions or anything. We haven't seen a whole lot of new products. We kind of feel that we're the leader in new product introduction over the last year or two.

So to answer your question just straight up, no, I don't see a whole lot of big change there.

Great. And then just one last one. Your capacity utilization, how would you characterize it? I don't know, is it fair to talk about it company-wide or by segment? What's the direction it's been going in?

We have a -- we always have a lot of competitors on these phone calls, and we can see who they are, so we don't tend to want to talk too much about what our utilization is, but I would say that, overall, we're in fairly decent utilization shape and we're -- where we've seen that we've had excess utilization, we've moved very rapidly to eliminate that.

At the same time, we're also making sure that we are purchasing the right kind of high technology capability to be able to handle whatever comes down the path. But we don't really like to give out specific information on that.

I'd maybe just add --

Sure.

-- Don mentioned that we have -- we've increased our plan to spend a little bit more on capital investment this year, and there's a substantial amount of that, about half of that is focused on growth investment. So we think that the capital plan is sufficient to meet our growth need in the business.

Yes, good question.

Okay. Thanks for your help.

Thanks, Gary.

Chris Manuel, Wells Fargo Securities.

Yes, just had a couple quick follow-ups. First is, I know you've made a bunch of tweaks and adjustments to the model to make this less relevant now than it used to be, but how would you characterize 2011 and where you are right now heading into 2012 from a, call it, cost price spread standpoint? Do you think that -- would you characterize the businesses as back at kind of normalized levels today? Or how would you think about that?

You know what you refer to as the cost price spread, we refer to in our business as our material margin, the margin that we make over raw material -- or essentially the difference between price and raw material costs. And I think, as we said, much of our effort is to try to stabilize that material margin to reflect in the value added that we're bringing to the marketplace. And I would say that we've made very good progress moving in that direction.

Our goal is to -- that will sort of bounce around as raw material volatility kind of causes it to bounce around, but we've got to use that as a guidepost for judging whether we're passing raw material costs on to the marketplace effectively.

The thing that might cause us to improve that in the future is as we have some more success in driving alternative materials into our raw material cost basin, it'd be lowering our fundamental cost of raw materials.

Okay, that's helpful. Just a couple other quick follow-ups.

Don, I think you went through CapEx. You said it was going to be about $30 million. Do you have a D&A number for 2012?

I do. D&A for 2012 is going to be roughly $34 million.

Okay, so roughly flat. You gave a tax rate of working capital as a -- sounded like would be a modest use of cash, as well?

Yes, as we experience growth, we're going to see a little bit of use of cash. I would say it's modest, yes.

Okay. The last component was -- I wanted to ask about was corporate expense. It looked like it was up quite a bit, almost 30%, 2010 -- '11 versus '10. What were some of the big buckets that drove the increase there? And what are your thoughts as you look into '12? Or is this kind of a normalized rate?

No, I think it is a little bit high. I'll tell you that we had -- we increased corporate expenses by about $1.5 million due to a bad debt that we took in the year.

And we also have -- we experienced about $1.5 million' worth of M&A expenses that were -- are all caps (inaudible) corporate world. So as we actively look to grow the company, not only organically and new products, as David and John had both talked about, we're also looking to grow via old-time-type acquisition, and so we did experience that, as well.

So from a 2012 perspective, we'll probably continue to see some of those M&A expenses continue as we look at it, but hopefully, we won't see the bad debts, especially the large bad debt expense that we took in the year.

Okay. And then I'm guessing maybe some of the IT expenses will flow through there, too, but the --

Yes, as John mentioned, we are going to have about a $2.5 billion investment next year as we look to enhance some of our systems across the company.

Okay. Thank you much, gentlemen.

Thank you.

Thank you.

(Operator Instructions)

Brian Sponheimer, Gabelli and Company.

Hi. Good morning. I'm sorry I hopped on late. You had talked about some -- about the inventory issues that plagued you throughout 2011 as far as Lawn and Garden, but you also talked about some order activity in the fourth quarter. Could you just kind of walk through that again for the benefit of--?

David will handle that.

Sure, Brian. This is David Knowles.

In Lawn and Garden, we entered the season in 2011 with the expectation of having a pretty good strong season, and, you know, we're building -- usually shipping and building during the first quarter.

What happened in 2011 is there was just a series of core weather events in the end of the first quarter and throughout the second quarter that caused demand in the height of the season to be significantly impacted, and that drove inventory -- we carried more inventory ourselves as a result of that, but the marketplace carried more inventory of pots and flats and trays through that process.

So that drove what we describe as this inventory overhang, and we've been working our way through that. But we finished the year with still, I think, a market carrying some inventory overhang into this growing season, which really begins in the first quarter of this year.

So while we say we expect in 2012 that we won't have those same negative circumstances from a weather standpoint, we ought to have a decent year if we have reasonable weather in the marketplace. We're still going to get off to a fairly slow start because we've got to work our way through that inventory overhang that enters into the season that begins this first quarter.

Okay, so nothing different then than what you've been saying in prior quarters from an inventory overhang standpoint?

No, I think that's -- it's fair. It just it didn't get -- it doesn't really get worked off until you enter the real growing season, and that's what we're now in now, so it's looking through that.

And the key, Brian, is this -- obviously, this spring has been very, very warm here in the Midwest, so there's great opportunity from that standpoint.

Right. And thank you. That's helpful. And if I'm thinking about how you're thinking about share repurchases going forward, a little bit of deceleration in the quarter. Obviously, you're having a great day today in the market. What metrics should I be thinking about as far as how you look at repurchasing your shares?

Well, we're going to -- we take a look at really opportunistic purchases as we look at buying back stock. You know, there's a couple of things that we try to do for shareholders to grow stakeholder value and to return capital to our store stakeholders. And, of course, returning capital to stakeholders can be done through dividends, it can be done through share repurchase, and certainly through debt reduction.

We have some specific financial hurdles that we would like to run through before we see spending the money to repurchase shares for shareholders makes more sense than spending that capital to do something else to grow the business that in longer term will grow larger stakeholder value.

So I can't give you any specific formula that we use, but as you know, we did in 2011 purchase back about $22 million, returned that to our shareholders, and we will continue to take a look at that in 2012.

Okay, thank you. And then just one final since you did mention the dividend. Any discussions internally as to what changes in tax structure may do to your policy regarding dividends?

Well, Brian, this is Don. We have thought a lot about that, and we want to do what's right. When John talks about deploying cash back to our shareholders, we want to make sure that we take that into consideration, and if that became less of an advantage for our shareholders, we would look at alternative means to get the cash back, i.e., if share repurchases ever --

Absolutely.

It's clearly on our radar screen and in our models.

You know, a lot's going to depend upon this year and the political situation this year and what happens from a tax standpoint, but 100% agreement. We will do what's right for the shareholder.

Great. Thanks so much.

Thanks, Brian.

Thank you. And that concludes our question-and-answer session for today. I'd like to hand the floor back over to Miss Monica Vinay for any closing remarks.

Thank you, Jackie. 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. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.