Myers Industries Inc (MYE) 2012 Q2 法說會逐字稿

Greetings and welcome to the Myers Industries second-quarter 2012 earnings conference 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.

Good morning, and welcome to the Myers Industries second-quarter 2012 earnings conference call. 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, Chief Financial Officer and Corporate Secretary.

Earlier this morning we issued a news release outlining the financial results for the second quarter of 2012. 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 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 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 filing.

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 join us. Before discussing our second quarter, I'd like to comment on our recent acquisition. As you probably know, on July 9 we announced that we acquired Plasticos Novel Do Nordeste S.A., or simply Novel for short. As previously reported, the purchase price was $27.5 million subject to certain post closing adjustments.

Novel's projected annual sales for 2012 are estimated to be approximately $38 million. We financed the purchase through the drawdown of our line of credit. Novel is one of Brazil's leading designers and manufacturers of plastic totes and crates used for closed loop shipping and storing in the region's fast growing of food and agricultural industries.

Novel also produces a diverse range of plastic industrial safety products. It operates from two manufacturing facilities; one is located in the state of Parana in the south of the country and one is located in the state of Bahia in the fast-growing northeast. And of course our Myers do Brasil operation is in Jaquariuna, just north of Sao Paolo in the middle of the country. An overview of the acquisition is located on slide 3 of the presentation.

Novel maintains very strong relationships with industry-leading international companies and is highly regarded for its innovation, quality and service. Novel also complements our existing Material Handling business in Brazil which produces bulk containers, pallets and totes for the agricultural, automotive and manufacturing industries in the region.

The acquisition clearly fits our Material Handling segment strategy which includes geographic expansion in North and South America, growing our more profitable end markets and leveraging our strong existing position. Our strong balance sheet and free cash flow generation enables us to take advantage of these types of attractive bolt-on acquisitions. Novel will be included in the Material Handling segments results beginning in the third quarter.

Okay, let's turn to slide 4 of the presentation. Net sales increased 2.2% to $181.1 million compared to $177.3 million in the second quarter of 2011. The significant sales increase in our Engineered Products segments, combined with a moderate sales increase in our Lawn & Garden segment, more than offset anticipated softer sales in our Material Handling segment and a sales decrease in our Distribution segment. John will provide more detailed around these variances.

Gross margin increased to 26.2% compared to 25.1% in the second quarter of 2011. Productivity improvements generated by our Operations Excellence initiatives cost reductions were the key drivers of the year-over-year increase.

Net income for the quarter was $5.7 million or $0.17 per diluted share compared to net income of $4.7 million or $0.13 per diluted share in the second quarter of 2011. On an adjusted basis, which excludes restructuring costs and other special items, our earnings per diluted share in the second quarter were $0.17 compared to $0.14 in the second quarter of 2011.

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

Thanks, John. Good morning, everyone. I will comment first on the overall financial results which are summarized on slide 5 of the presentation; then I will review the results by business segment. I will only review the items on slide 5 that John hasn't already discussed.

SG&A expenses in the second quarter of 2012 were $37.4 million compared to $35.8 million in the second quarter of 2011. The increase in SG&A quarter over quarter was driven primarily by increased compensation costs including medical expenses as well as higher freight costs in our Lawn & Garden and distribution segments. The higher freight costs were mainly due to shipping inefficiencies that will be remediated by the end of the year.

Our effective tax rate during the quarter was 36.7%. We anticipate that the effective rate for the full year 2012 will be in the range of 38%. Cash as of June 30, 2012 was $35.6 million compared to $6.8 million as of December 31, 2011.

The increase in cash took place primarily because the Company drew on its line of credit right at the end of the quarter in order to position funds for the acquisition of Novel in early July. The offset to the increase in cash is captured in long-term debt which increased from $73.7 million as of December 31, 2011 to $101.8 million as of June 30, 2012. At June 30, 2012 debt net of cash was $66.5 million compared to $67.2 million at the end of 2011.

Cash flow provided by operating activities for the six months ended June 30, 2012 was $7.9 million compared to $8.8 million in the same period of 2011. Capital expenditures totaled $8.4 million for the six months ended June 30, 2012. We estimate that capital expenditures for the full year 2012 will be approximately $30 million and about 50% of those projects will be growth oriented.

As John mentioned, on July 9, 2012 the Company announced that it had completed the acquisition of Novel. The purchase price was $27.5 million subject to certain post closing adjustments. The results of Novel will be integrated into our Material Handling segment effective July 1, 2012.

Now let's turn to our business segments and their performance as summarized on slide 6 through 9 of the presentation. Results are compared to the same period in 2011. I will be referencing the adjusted pre-tax income information by segment as it appears on the reconciliation of non-GAAP financial measures included at the end of the slide presentation and in the earnings release issued earlier today.

Let's begin with the Material Handling segment shown on slide 6. Net sales for the second quarter were $60.3 million compared to $67 million in the second quarter of 2011. The lower sales in the second quarter as compared to last year are mostly the result of a foreseen delay in customer orders from the second quarter of this year to late in the second half of this year, as we mentioned in the first-quarter earnings call.

Adjusted income before taxes in the Material Handling segment was $9.2 million in the second quarter of 2012 compared to $8.4 million in the second quarter of 2011. Despite lower sales the segment generated increased income as a result of productivity improvements generated through our operations excellence initiative combined with lower manufacturing costs during the quarter.

If you turn to slide 7 you will see that net sales in the second quarter in the Lawn & Garden segment increased to $42.5 million from $41.8 million in the second quarter of 2011. Although sales increased year over year, they were softer than we anticipated as customers chose to continue to deplete their inventories during the quarter and also limit production for a second planting.

The adjusted loss before taxes in the Lawn & Garden segment was $1.5 million in the second quarter of 2012 compared to a loss of $1.6 million in the second quarter of 2011. The income generated by the sales increase was partially offset by higher freight costs during the quarter which resulted in only a slight improvement in operating results year over year.

Please move to slide 8. Net sales in the Distribution segment decreased to $44.2 million in the second quarter of 2012 compared to $46.1 million in the second quarter of 2011. The decrease in sales is due to softer customer demand during the quarter that was driven by decreases in both replacement tire sales and miles driven.

Adjusted income before taxes in the Distribution segment was $4.1 million in the second quarter of 2012 compared to $4.5 million in the second quarter of 2011. The lower sales volume as well as higher freight cost during the quarter led to the decreased in income before taxes year over year.

On slide 9 you will see that net sales in the Engineered Products segment were $38.6 million in the second quarter of 2012 compared to $27.9 million in the second quarter of 2011. Strong sales driven by a year-over-year rebound in the transplant auto market combined with sales increases in the recreational vehicle, marine and custom markets generated a 38.5% increase in sales during the quarter.

Adjusted income before taxes in the Engineered Products segment was $4.7 million in the second quarter of 2012 compared to $2.7 million in the second quarter of 2011. This significant sales increase, as well as the lower cost resulting from the execution of our Operations Excellence initiative, drove most of the 74% increase in income.

That concludes the financial review. I will turn the call back over to John for some summary remarks. John?

Thanks, Don. Please turn to slide 10 of the presentation. During the second half of 2012 we expect the following in each of our segments. In our Material Handling segment results should benefit from the shift in demand from the second quarter to late in the second half of this year in the higher margin food processing and agricultural markets.

Because inventory throughout the channel has been depleted in the Lawn & Garden segment we are seeing stronger order activity as customers prepare for the next season. We believe that this combined with lower cost resulting from our Operations Excellence initiatives will lead to improved results in the second half of this year.

In our Distribution segment performance may continue to be impacted by declines in replacement tire sales and miles driven. However, we have not incorporated into this view the potential benefit from the recent small decline in gasoline prices.

In our Engineered Products segment we anticipate continued strength in the marine market as a result of further customer conversions to our EPA approved fuel system, Enviro-Fill. We also expect that demand in the transplant auto market will be at more normal levels during the second half of 2012. In other words, the average quarterly demand in the Engineered Products segment in the second half should be lower than was the case in the second quarter.

While we anticipate continued headwinds resulting from the mixed economy, we believe that our results in the second half will benefit from our Operations Excellence program, as well as the shift in orders in the Material Handling segment in the second quarter to the fourth quarter of this year. We expect our full-year results to reflect another year of successful execution of our strategic objectives.

That concludes management's presentation. If I could 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. As a reminder, please keep in mind that in addition to John and Don, David Knowles, our COO, is also available to answer questions. Go ahead, please, Christy.

(Operator Instructions). Chris Manuel, Wells Fargo Securities.

Congratulations on a good quarter. A couple questions for you. First, if I could center a little bit around the Novel acquisition. As you put that together with your current business what types of opportunities or synergies do you envision?

Are there any financial synergies or any product synergies that you can take from what obviously is a much, much, much bigger business here in North America, some stuff down there? Are there some things potentially from South America you could anticipate bringing up here? I saw some interesting products that looked like [they make].

How do you look at the opportunity and the opportunity for growth coming out of that piece? And then, Don, as well, if you could provide us some of the -- I think you gave us some revenue numbers -- a sense as to maybe either a multiple paid or what you anticipated for 2012 EBIT/EBITDA, things of that nature?

Chris, this is John, let me start first with talking about synergies, and certainly there are synergies in this deal. We're going to go slow in taking the effect of these synergies because we want to make sure that we do it right. But some of the items would be, of course, SG&A costs.

One of the things that Novel does very, very well is material recycling. In fact, virtually 100% of the material they use is recycled; they do that on site in both of their facilities. There are some technology opportunities there that we expect to learn from and take advantage of here in the US.

Certainly there is potential plant consolidation down the road, but again as I said, it's best to take this slow and make sure that we do it correctly. We have a good team on the ground in Brazil and we have a good team operating our Material Handling segment here in the US and working together they are going to make some opportunities out of that.

I think finally, from a customer standpoint, there is major customers that Novel deals with, especially in the beverage industry and the ag industry in Brazil; they are in some cases the same customers that we have in the US. So we see some real opportunities there from a product standpoint.

And then I think in addition with the larger products that we make at Myers do Brasil currently, the pallets and bulk boxes, we certainly see some opportunities down there in the beverage industry around plastic pallets to replace wood pallets. So all in all I think there is a tremendous amount of opportunities.

We didn't do this quickly, it took us almost a year to make this acquisition to be sure that it was right. I think the team did a great job of putting the acquisition together. And so from that standpoint I am really, really excited about what we have done in Brazil. I will turn it over to Don to kind of answer some of the other questions that you have.

Yes, Chris, I would say if we just want to talk about operating margins for a second within the acquisition, I would say that the operating margins currently, before any of the things that John just talked about are in place, are about the average of our Material Handling segment.

So there is a lot of -- there is a lot of products and businesses, as you know, that are in there. So I would say this business is about average. And I would say as we watch the dust settle from a purchase accounting standpoint and so on as far as the multiple goes I would say we are somewhere between the four and five range.

That sounds very attractive. And then the next question I had was actually for David -- when you talk to us about new products, things of that nature. So if you could -- I guess I have two questions for you.

First, if you could run us through maybe where some of the volumes were by your -- what you felt organic volumes were for your different segments. And you gave us some up or down kind of directional stuff, but if you could be maybe a little more specific? And then also talk to us about progress in the new product initiatives.

Sure. Yes, I think I will start with organic volume, our overall organic volume sales growth was slightly up in the second quarter, we were down in this end of the double digits in the Material Handling business, in the low single digits in the Distribution business, we were up slightly, as you saw, in Lawn & Garden, and we're up substantially in Engineered Products, well into the double digits, which is a terrific quarter for that business. And that is a trend that by and large has been in place for the first half of this year.

In terms of new products, I think you recall we set a target for products introduced in the last three years or sales as a percentage of our total revenue from products introduced in the last three years. We have been moving up a track, getting over 5% of our sales from new products, we have definitely come into that range in the second quarter and into the -- in the first half of this year. So we are over 5%.

We have, I think we have mentioned before, a stretch goal over the next couple of years to get ourselves to 10%; we are not in that range yet. We are getting into a range where we think it's bringing some real benefit to the business though. As we go forward some of the products will drop off after three years and we will have to replace them and that and so getting into the -- we are getting into the high single digits and I think we are tracking reasonably well according to our plan.

Is there anything -- if I can just dig a little deeper. Is there anything in specific areas where you are seeing more activity in other specific segments, specific type products that are some big wins or some new stuff that is maybe recently commercialized, things of that nature?

Yes, you know I would say that there isn't any single product, particularly in the second quarter, that rings the bell for the whole Company. I look at that as good news. It is a fairly diverse program that we have. A couple of highlights, so the Material Handling business did quite well in the second quarter.

Two areas of note -- one is a distribution tote in our Akro-Mils business has really started to come on in the second quarter and we expect that to follow through for the rest of the year, it's a very good product for us. And the Material Handling -- the Buckhorn business has continued to grow in the non-tomato paste -- liquid returnable packaging area with our -- with our IBC product line. And we just are having continued strength in let's call it nontraditional markets with that product and that certainly helped us in the second quarter.

Interestingly, the distribution business continues to make good progress in some of the fairly unique products that it is bringing to the market. We've got I think a TPS product -- TPMS product that's really making some nice ground in the second quarter as well.

Okay, that's helpful. And then maybe, John, if you could -- you updated the tax rate and I think you gave a CapEx number. Do you have an updated D&A number? I don't know if there is extra stuff that is going to roll on for half a year of acquired stuff or not?

Well, there is really no update to the last number we gave you.

I forget what the number was again; can you refresh my memory?

It was about $36 million.

Okay, that's helpful. And then last question with respect to other activities uses of cash. Having completed an acquisition here in the quarter are you still -- I know that has been the primary focus for finding good properties to tuck in the portfolio. Are you still in the market? Does having completed this one sort of [in a pause] situation. Could you maybe kind of go back through, John, the priorities for cash as you see them?

Again, Chris, you know we are always open to look at enabler and bolt-on type acquisitions. An enabler like Enviro-Fill has been very successful; a bolt-on like Novel we think is also going to be very successful. We are going to continue to look for opportunities, but as well as we are also going to continue to utilize our cash to improve our shareholder value.

So nothing has really changed with respect to how we use cash. We are going to continue to maintain the current business, we are going to grow stakeholder value through new product development, grow capital with a target of an ROIC probably north of 15%, of course process improvements and acquisitions go with that.

And we will return capital to stakeholders through debt reduction, continue paying dividends and the possibility of share repurchase if the share price is in the right vein. So I think that is a pretty succinct answer to your question.

Okay, thank you.

Hey, Chris, it's Don, I misquoted a number. The depreciation and amortization forecast for the full year, I think the number that I quoted in the past is $34 million, not $36 million.

You are right, (inaudible).

Thanks for not correcting me.

I didn't remember what it was until you said it, then I went back and I looked. Okay, so (inaudible). That is helpful. Thank you, guys, good luck.

Adam Josephson, KeyBanc Capital Markets.

Couple of questions, you guys. You mentioned previously that last year's sales mix in Material Handling was unusually favorable which resulted in your 13% EBIT margin. Now you are on pace to generate margins in that business substantially higher than last years. What level of margin improvement is reasonable to expect in this business in the quarters to come and why?

This is David, I will address that one and I'm glad you mentioned that. You do recall after the second quarter of last year we said we experienced a strong mix in the second quarter of last year and I think we have also said that we have a timing issue on orders in the second quarter of this year, and I'm sort of addressing demand right now.

We expect those to fall for us later in the year, I think into sort of late in the year this year. As customers are asking us to bring product to them more in time with the seasonality of their business and we are working to make that happen so we can help grow that part of the business, which is going to -- which has been a good business for us. And that did have a positive impact on us in the second quarter of last year.

This year the margin improvement has been driven by three things in Material Handling -- material cost, projects that we continue to work on to find ways to bring material cost down with the use of alternative materials, productivity and we -- in the second quarter this year we had a substantial improvement in our productivity versus our plans because some programs are really delivering for us.

And the third -- and I think the thing that is really driving what we expect is stronger margins in that business is just looking at the business and making sure that the product and sales that we are driving through our assets are valuable to us. So we have been upgrading the mix of what we sell through our Material Handling business as we go forward and it means that some of the products and sales that we have had in the past that are not as valuable we've either foregone or taken the risk to try to upgrade the profitability of it.

And I think that is some of what you are seeing flow-through in the second quarter and we expect to continue to do that. Of course the comps on this are going to get much harder as we go forward. We've made a lot of ground and we expect that, aside from some fluctuations here and there, we can maintain the ground. But the comps are going to get much harder on these three things because we have had some very good success with that through now.

How much capital do you expect to invest in Lawn & Garden this year and next? And what gives you confidence that you will receive an adequate return on that investment given this business' struggles?

So, this is David again, I will address that one -- and maybe address the broader issues as we go. We are investing less than our depreciation in the business. It is really oriented toward maintaining our position in the business and maintaining our competitiveness in the business. Much of our focus in investments around the business is oriented toward driving cost out, driving productivity and making that a competitive business, it is not a business we are expected to and try to invest to grow substantially.

And I think there is a -- the broader point around Lawn & Garden is that it's a business clearly in our portfolio that is not earning its cost of capital. So we have a pretty intense focus because from the long-term view of Myers Industries we don't want that, we don't want to have that in our portfolio. So we are clearly taking action on three dimensions to address that.

The first dimension is the one that we have been talking most about which is substantial productivity improvement, cost reduction and market repositioning within the business. And we've made significant strides on that. And I think with volume those would get us to earning our cost of capital.

So as you see in the second quarter, volume isn't necessarily solving that issue for us, so we have to look at another dimension which is, is there deeper restructuring available to us in the business? And we are looking at that very seriously right now.

And then ultimately the third dimension is looking at the broader industry and externally and is there a solution to this business externally. We've got a difficult industry structure, is there a solution to that? Ultimately you have to look at how does that business fit in our overall portfolio. And what I would say is we are looking deeply at all of those issues right now.

And so our commitment as part of Myers -- Myers Industries is that we are going to make the right decisions on those things and I think importantly at the right time to make those decisions, to get them -- to get it addressed and have this business at Myers Industries fit expectations of our shareholders.

Adam, this is Don. The only thing I will add to that -- was the second part of your question how do we know that that capital is going to return in adequate -- how are we going to get an adequate return? And I can assure you that there was a very rigorous process around how we decide when and where to spend our capital in all of our businesses, but certainly that would apply to Lawn & Garden.

Thank you, Don and Dave. Then one more broadly. The Company's gross and EBIT margins have been volatile in recent years and now you are running toward the high end of your historical range. Can you give us a sense of what you think the sustainable margin structure for this Company is and why?

Yes, I think, like David said, I will kind of use what he used a couple of times here when we talked about margins. And we are getting to the historical highs at the end. For example, the Material Handling, we are looking at getting very close to our high water marks back in the 2006-2007 range when we were between 14 and 16. So we are pushing that.

I think that our Operations Excellence initiative, our move for mix management on both on a customer and product level have helped. But as we get closer to gross margins pushing 30%, that is probably at the high end of it.

And then what's going to happen is you are going to see the other pieces of our strategic plan start kicking in. Right now you are going to see the growth and innovation start hitting where we are replacing some of our products with higher gross margin niche products, et cetera. But the growth that you are going to see is going to be a lot slower.

What you have seen over the last eight quarters is a sequential increase in our gross margins quarter over quarter, right, if you look at Q2 here versus Q2 of last year we're up 110 basis points. But if you were to look at the last seven quarters as well you'd see that same type of growth, in fact you'd see greater growth.

So we are starting to get to the point where it is difficult to continue to comp that. And the next phase of the strategic plan kicking in, as David talked about, as we really start seeing this growth in innovation take over that is how we will see more growth on the margin.

And I would just add, we are trying to take some of the historical volatility out. We will still have some volatility, but we have had more historical volatility because of seasonality and because of resin price volatility and it's to the resin price volatility we're trying to manage or at least minimize the impact of that in our margins.

That's helpful, both of you, thank you. And just last one on -- back to Lawn & Garden, just to the general market environment. Was -- again, consumer sentiment or weather the bigger problem in the second quarter as far as you know?

Consumer sentiment was a problem; there were really two factors that drove Lawn & Garden sales not strengthening as quickly as we would have liked them to strengthen. The first is because of the really difficult season last year small and mid-sized growers we found did not make speculative planting this year.

And we I think have talked about a second planting or second turn; there was just much weaker planting that went into that despite actually -- we had a good season from a weather standpoint. But it was really a conservative approach that the small and mid-sized growers took.

As a result of that distributors took and much more conservative position and depleted their inventories much more significantly than they have in the past. And that caused the inventory through the channel to deplete pretty well and growth to be -- the sort of sequential growth to be lower than we had expected.

The second driver is consumer sentiment which you mentioned, and we see that show up in reports that sales out of the big-box stores this year were down and varying across the different big-box stores. But sales through the garden centers were slightly down and I think that that is just reflective of a more sluggish general economy.

And I think those two things really offset what we were expecting to be the positive, which was a really favorable weather pattern (technical difficulty). Now we think we have kind of gotten through the challenges on the inventory in the channel from the weak season last year and our second half should start to show stronger comparisons versus -- as people start to prepare for the next season. But this conservative approach at small and mid-size growers had a real impact on us.

David and John, thank you for all of that. Appreciate it.

(Operator Instructions). Christopher Butler, Sidoti & Company.

Staying on the same topic of Lawn & Garden, I think that the difficult growing season for crops is getting a lot of publicity right now. Is there any risk that that would have an impact looking into your 2013 season as the plants just don't develop as they are supposed to over the course of 2012?

No -- go ahead Dave -- well, everything that is grown is grown in a greenhouse so it is protected from elements, it is irrigated, that's the whole part of the process. And then even when they get to the big boxes, in most cases the big boxes are making sure that they take care -- you'll probably see people in there watering every day, fertilizing and making sure. So I don't -- we don't think there is any -- David, do you think there is any issue with that?

I don't think so.

And using the same train of thought, shifting to Material Handling where you are expecting an improving demand environment for the fourth quarter out of your ag business. I know there has been a lot of talk of possibly farmers plowing under their fields at this point, not buying tractors, questions as to whether they are going to buy fertilizer. Do you think that there is risk that Material Handling gets hit by some of the same headwinds?

It doesn't appear that way to us and I think the niche in the ag business that we serve isn't going to be as greatly impacted by that.

Looking at the second quarter, can you give me an idea of the raw material costs, how that changed sequentially for you and expectations moving into the second half?

Yes, raw material, we actually saw a little bit of a benefit in the quarter from resin as resin dropped early in the second quarter and then it started to spike right back up again here in June. So the schizophrenia continues on resin pricing. But we are not going to see the big movements in resin affecting the P&L because of the value pricing structure as part of our Operations Excellence initiative that we have in place.

So raw material really is not that big of a benefit or a subtraction to our margins these days. Going forward it does look like resin is going back up and we will price our products accordingly to make sure that there is a limited impact on the P&L.

I appreciate your time.

Chris Manuel, Wells Fargo Securities.

A couple of questions -- follow-up questions for you. First, if I could go back to the Material Handling business for a second, and you talked about some product being pushed out to later in the year. Could you give us an example of maybe a type of product, just something that might be that normally, and I think you had indicated, would have saw earlier in the year second quarter/third quarter that is being more sequenced as a customer wants it that might be late in the year.

And so maybe if you could give us an example. And then second, if you could give us a sense of -- I mean just from looking at revenue dollars it could be $5 million to $10 million. So that is something I guess that, if I understand you correctly, you are anticipating will move to the back half of the year. It's not something that is going away, it is just a timing issue within the year, is that fair?

Yes, that is fair. So as we look at the year overall we think the Material Handling business is in reasonably good shape, even though it started the year, and particularly in the second quarter, was a bit soft. And this is that timing issue that we have discussed since the second quarter of last year.

And I would rather not be specific about products or customers, but I think I can maybe give you some insight as to how -- we have really expanded our investment and focus on the food and agricultural market in general. And different products within that market have different growing seasons.

And as we are investing to really grow that and pursuing customers and trying to better meet our customers' needs, customers are asking us to deliver product closer to when they need it. And we have been able to manage that a little bit differently in the past but as we grow we are finding ourselves working to get product to customers closer to when they need it.

So that has been really the case here and that is why we expect to see stronger demand later in the year in preparation of that spring growing season for some of our products. There is other products that our seasonality is a little bit different than that. But that's the one that we are talking about specifically here.

Okay, that is helpful. And then last two calls I had were -- or maybe three -- within the Engineered Products business that, again, just saw terrific levels. And I do remember if we were aligned to a year ago we were probably in aftermath particularly on the transplant side of potentially some of those folks getting parts that had issues with tsunamis and things of that nature -- or not, sorry, tsunamis, but earthquakes and things and that nature.

Is that something that -- could we have another quarter or two like that that is still kind of catch up from a year ago. Or are we kind of back at a more normalized -- the big outperformance in revenue there, I think you specifically in some of your remarks cited some Enviro-Fill stuff, but I thought that was a much smaller piece. I thought the transplant might be bigger. So if you could maybe give a little more color into that.

This is John. Good question. It is certainly slow -- it is slowing down. If you look at say Automotive News every week, which I do, and track car builds, you will see that the transplants are slowing down. They have caught up from the tsunamis. So that is why we are saying what we said in our presentation is that we won't see the same kind of (technical difficulty) volume in the back half of the year as we saw in the first half of the year.

Last question is (inaudible) Lawn & Garden. I appreciate, David, the color you gave us with regards to the three dimensions that you are evaluating the business under. As we look back, the history of the business obviously been much more profitable and the environment has quite frankly been a bit different too, so there have been a lot of changes.

But with housing starts seemingly getting a little bit better there has been an element of business related to that. Can you maybe kind of walk through what your anticipations are, how that has changed? I mean clearly this quarter, as you discussed the three dimensions, there is a new dimension that we have not heard before within there of options for you in that business.

Can you maybe walk through what has changed with your thinking that would now bring a possible exit to that element of the portfolio into the equation?

Well, let me take that and David can -- will ham and egg it a little bit, Chris. Let's go back to 2007 when Myers of course started with the Dillen brand, the Pro Cal brand and the Listo brand. And in around 2007 things were pretty good in this business, there was some overcapacity in our major competitor because of the overcapacity situation began to cut prices dramatically.

So we took it upon ourselves to help eliminate some of that overcapacity and we felt like that was the correct direction to take at the time. Obviously things happened during the eight, nine, ten years from an economic situation and as you look at it today there still is an overcapacity in the industry even though we have taken a lot of that capacity out.

So I think as you -- as we think about -- and David said it very well earlier -- there is three or four different options that we can take a look at, a very radical option is -- it would be certainly more capacity changes both to ourselves and potentially for competitors.

We are just -- we are kind of sharpening our sword and looking at all different options for the business. We have made no decisions whether it's an ongoing business or something else at this point in time. But certainly we have to be I think cognizant of the economy, the economic situation and how this business looks moving forward. David, I don't know if you want to add anything to that or --?

No, other than, yes, what might have changed. I think this second quarter we expected growers to be more aggressive, bullish. And we found them more conservative and just frankly it is taking us longer based on that to drive this back to where it's earning its cost of capital. And so I think our commitment is to get this business where it is earning its cost of capital, we will consider all other options.

Fair enough. Thank you.

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

Thank you, Christine. We thank all of you for your time and your participation today. As a reminder, a transcript of this call will be available on our website within approximately 24 to 48 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 all for joining us 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.