Myers Industries Inc (MYE) 2012 Q3 法說會逐字稿

Greetings, and welcome to the Myers Industries third-quarter 2012 earnings call. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Monica Vinay, Director of Investor Relations. Thank you, Ms. Vinay. You may begin.

Thank you, Jessie. Good morning, and welcome to the Myers Industries third-quarter 2012 earnings conference call. I'm Monica Vinay, the Director of Investor Relations at Myers Industries.

Joining me today are John Orr, President and CEO; David Knowles, Executive Vice President and Chief Operating Officer; and Gregg Branning, Senior Vice President, Chief Financial Officer, and Corporate Secretary.

Earlier this morning, we issued a news release outlining our financial results for the third 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 also 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 to all. It's a pleasure to have you join us today.

A lot has occurred since our last quarterly call. We completed another quarter of strong growth in adjusted earnings.

We closed on our acquisition of Brazil-based Novel, an excellent addition to our material handling segment and a company with a reputation for innovation and service in Brazil. Additionally, we announced the acquisition of Jamco, a quality addition to our material handling segment.

And another important event in the quarter was the addition of our new CFO, Gregg Branning. Gregg brings significant experience and a strong skill set to our management team to benefit us as we continue to implement our growth strategy. He comes to Myers from Danaher, one of the most impressive growth stories in the US, which has been reflected in the significant outperformance of its stock. Gregg held a variety of roles at Danaher as both President and CFO of several of its public subsidiary companies. I know Gregg has already met a couple of you and is looking forward to meeting and working with all of our stakeholders.

I would now like to discuss the highlights of the quarter. After that, Gregg will discuss our segment results and financials. Please turn to slide three of the presentation.

Net sales increased 3.7% to $197.3 million, compared to $190.3 million in the third quarter of 2011. Very strong sales of engineered products, combined with a sales increase in material handling, more than offset the sales decrease in distribution.

Gross margin increased to 26.7%, compared to 25.1% in the third quarter of 2011. Productivity improvements and material substitution cost savings generated by our operations excellence initiatives were the key drivers of the year-over-year increase.

Net income for the quarter was $5.8 million, or $0.17 per diluted share, compared to net income of $7.2 million, or $0.21 per diluted share, in the third quarter of 2011. On an adjusted basis, which excludes restructuring costs and other special items, our earnings per diluted share in the third quarter were $0.20, compared to $0.14 in the third quarter of 2011.

You may recall that in the third quarter of 2011, we had net favorable tax adjustments of $3.8 million. Those favorable adjustments more than offset any restructuring costs and other special items, and caused adjusted income per share during last year's third quarter to be lower than reported income per share. Gregg will provide further information regarding those adjustments.

Please turn to slide four of the presentation. (Technical difficulty).

Before I turn the call over to Gregg, I would like to update you on our strategic plan and how our recently announced acquisition of Jamco aligns with our growth plans. At our July strategic plan review with our Board, we took a more granular look at opportunities for growth that exist within our business segments and designated five growth platforms within Myers Industries. In each of these distinctive platforms, Myers has proven competitive advantages, earns better than our cost of capital, grows at a rate of more than 1.5 times GDP, and meets our strategic geographic growth plan.

The five growth platforms consist of two platforms within material handling, returnable packaging and storage and safety products; two platforms within engineered products, higher repair and retread products and specialty molded products; and the fifth platform, distribution.

We believe that, by assertively developing organic and acquisition opportunities and consistently focusing on these five growth platforms, we will strongly position Myers for accelerated value creation while ensuring that we continue to drive a culture of customer dedication and innovation.

Please turn to slide five of the presentation. Indicative of this targeted growth focus, we have expanded our product offering within the storage and safety products platform with our October 1 acquisition of Jamco Products, Inc., a leading designer and manufacturer of heavy-duty industrial steel carts and steel safety cabinets. Established in 1995, Jamco sells its products through cataloguers and distributors, similar to many of our customers in our Akro-Mils business. Jamco operates three manufacturing facilities on one campus located in South Deloitte, Illinois.

Another key piece of our strategy involves making sure that all of our businesses are generating acceptable returns for our shareholders. During our second-quarter conference call, we stated that we needed to look more deeply at strategic alternatives in our Lawn & Garden segment because the market was flat and we were not yet earning our cost of capital in that business.

During the call, we outlined three broad dimensions of our strategic review of Lawn & Garden. They are, first, take further action for cost reduction and market position. Second, look more deeply at restructuring opportunities within the business. And third, seek opportunities to address industry challenges by looking at potential options outside of Myers Industries.

We've done further work on this top priority issue for management and the Board, and while we don't have specific actions to announce at this point, we can provide a closer look at some early thoughts. We will continue to take action to improve the business, as we did this quarter and have done the last several quarters through productivity improvements, raw material substitution cost savings, new product introductions, and market repositioning.

However, we don't think that these actions are generating value fast enough to meet both our expectations and those of our shareholders. After further review of the market, we believe that there is a range of alternatives to improve, restructure, exit, or externally combine parts of the business, and we're in the process of carefully looking at each of these options. From our view, it appears that there may be greater potential for value creation by addressing pieces of the business than by exiting the entire business at this time.

We wanted to assure you that we are proceeding in a very measured fashion to continue to improve Lawn & Garden's performance.

I would now like to turn the call over to Gregg Branning, our Chief Financial Officer, who will provide additional information regarding our performance during the quarter. Gregg?

Thanks, John.

I'm excited to be working at Myers and am looking forward to meeting those of you I haven't already met. I was attracted to Myers and excited at the opportunity the Company has to grow the business and increase shareholder value.

Moving on to the business at hand, I will comment first on the overall financial results which are summarized on slide six of the presentation, then I will review the results by business segment. I will review only the items on slide six that John hasn't already discussed.

SG&A expenses in the third quarter of 2012 were $43 million, compared to $40.5 million in the third quarter of 2011. The increase in SG&A expenses quarter over quarter was driven primarily by increased compensation and benefit costs, including severance costs that took place near the end of the quarter.

Our effective tax rate during the quarter was 32.4%. The lower rate was the result of some discrete tax items. We anticipate that the effective rate for the full-year 2012 will be approximately 38%.

As John mentioned, during the third quarter of 2011 the Company recognized net favorable income tax adjustments of approximately $3.8 million. Those adjustments were largely the result of realizing previously reserved tax benefits related to the loss of 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 of 2011, based on the expiration of the statute of limitations for assessment of the taxes.

Capital expenditures totaled $15.2 million for the nine months ended September 30, 2012. We currently estimate the capital expenditures in 2012 will be approximately $27 million to $30 million, and that about 50% of the capital spending will be growth oriented.

At September 30, 2012, debt net of cash was $90.2 million, compared to $67.2 million at the end of 2011. This reflects a higher level of capital spending and our acquisition of Novel.

Our balance sheet remains strong as we have a net debt to capital ratio of 28.2% and a debt to EBITDA ratio of 1.

Cash flow provided by operating activities for the nine months ended September 30, 2012, was $23.3 million, compared to $40.2 million in the same period of 2011. An increase in inventory was the primary reason for the decrease in cash flow from operating activities compared to last year. The change in inventory results from an inventory build required to meet the increased customer demand we see in the fourth quarter.

On October 2, 2012, the Company announced it had completed the acquisition of Jamco Products, Inc. Jamco was integrated into our material handling segment.

Now let's turn to our business segments and their performance is summarized on slides seven through 10 of the presentation. Results are compared to the same period in 2011. I will be referencing the adjusted pretax 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 seven. Net sales for the third quarter of 2012 were $76.2 million, compared to $72.1 million for the third quarter of 2011. Sales generated by the acquisition of Novel more than offset a decline in year-over-year sales for the rest of the segment that occurred due to a delay in shipments, which resulted from a shift in customer demand to later in the year. Those shipments are now scheduled to occur in the fourth quarter and will result in higher-than-normal sales for the quarter.

Adjusted income before taxes in the material handling segment was $12.5 million in the third quarter of 2012, compared to $8.9 million in 2011. Productivity improvements and lower manufacturing costs generated through our operations excellence initiative led to the increase in adjusted income before taxes.

If you turn to slide eight, you'll see that net sales in the third quarter in the Lawn & Garden segment were relatively flat at $45.3 million, compared to $45.8 million in the third quarter of 2011. Adjusted income before taxes in the Lawn & Garden segment was breakeven during the third quarter of 2012, compared to a loss of $1.4 million in the third quarter of 2011.

Although sales were flat on a year-over-year basis, the segment was able to realize income improvement through productivity efficiencies, raw material substitution cost savings, and lower distribution costs during the quarter.

Please move to slide nine. Net sales in the distribution segment decreased to $45.1 million in the third quarter of 2012, compared to $48.8 million in the third quarter of 2011. The decrease in sales was driven by a decline in replacement tire shipments and a decrease in equipment sales during the quarter. Our distribution team has put into place actions to capture greater equipment and supply sales in a weaker market.

Adjusted income before taxes in the distribution segment was $3.4 million in the third quarter of 2012, compared to $4.6 million in the third quarter of 2011. The lower sales volume during the quarter led to the decrease in adjusted income before taxes year over year.

Now if you'll move to slide 10, you'll see that net sales in the engineered products segment were $35.7 million in the third quarter of 2012, compared to $29.4 million in the third quarter of 2011. Strong sales in the transplant auto market, as well as increases across most of the segment's end markets, generated the 22% increase in sales during the quarter.

Adjusted income before taxes in the engineered products segment was $3.7 million in the third quarter of 2012, compared to $3.1 million in the third quarter of 2011. The sizable sales increase, which was partially offset by an unfavorable customer mix, drove most of the increase in adjusted income before taxes.

That concludes the financial review. I'll now turn the call back over to John to discuss our outlook and for some summary remarks. John?

Thanks, Gregg. Please turn to slide 11 of the presentation.

During the fourth quarter of 2012, we're anticipating the following with regard to our outlook.

In material handling, results should benefit from the previously discussed shift in customer orders earlier in the year to the fourth quarter, as well as continued growth from the Novel acquisition.

In Lawn & Garden, we believe that stronger order activity, combined with our continued focus on cost reduction, will result in improved performance for the quarter.

In distribution, we believe that our performance may continue to be impacted by a decline in the replacement tire industry.

And in engineered products, demand in the transplant auto market should return from elevated levels to more normal levels during the quarter. We also anticipate some softened demand in the recreational vehicle and custom markets, which is typical at the end of the year.

Despite some anticipated headwinds from a weakening industrial market and a challenging economy, we believe that our results in the fourth quarter will show continued strong performance. We expect that our full-year results will reflect another year of successful execution of our strategic principles. We have increased our focus on areas where we have a competitive advantage, return better than our cost of capital, and have good growth potential. In addition, we are certainly addressing areas that are underperforming.

Before we turn the call over to your questions, let me just take a moment to thank those of you who participated in our recent perception survey. We appreciate your candid feedback and you can be assured that all responses were taken to heart, and we are working hard to structure the business to drive the greatest returns and maximize shareholder value. Again, thank you for your participation.

That concludes management's presentation. I'll 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 Gregg, David Knowles, our COO, is also available to answer questions. Go ahead, please

(Operator Instructions). Chris Manuel, Wells Fargo.

Good morning, gentlemen.

Good morning, Chris.

Good morning.

Thanks for the slides. As always, they're very helpful.

A couple questions I wanted to start with. First, could you give us an update on new products? I know that's been a big initiative as to you're rebuilding your product pipeline, where you were in the quarter, what you're still anticipating for the year, and how you're making progress towards what the goal is.

Sure, Chris, this is John. I'll let David answer that question.

Chris, yes, I'd say we remain on track with new products from what we discussed last quarter.

I think we said that we have an overall goal of reaching 10% of our sales coming from products introduced in the last three years. We said that that's a stretch goal and we continue to see that as a real stretch goal. But we see ourselves reaching into the mid to high single digits, and I think that's kind of where we are at this point and where we expect to remain with this initiative.

Can you update us on any of the -- some of the new things you've launched, how adoption has been, are they getting good traction? Are there other potential -- maybe which division is the most [feeds] are falling in, et cetera?

Sure. I would say in the last quarter call, we talked a little bit about a unique kind of distribution tote that our storage business, Akro-Mils, had introduced, and that continues to be quite strong for us. We're looking for new customers to take that kind of a product capability to in the future, but it's been a nice strong product for us this year.

Our Material Handling business has probably our biggest investment in developing and bringing new products to the market. We've had some real success in developing new markets for our IDC product line. (Technical difficulty) the liquid box, the box we traditionally sell into the tomato paste business. We've found -- we're finding new non-paste applications for that, and it's been a nice growth opportunity for us this year.

And we're developing -- continuing to focus our development in new returnable packaging products for the food and agricultural industry, and I think that's something we'll continue to talk about for some time to come.

We are starting now to, sort of on the beginning side of seeing our Lawn & Garden business develop some new products that we're bringing to market, and we hope that those can bring us some benefit in the future. We've got some plans around that that are, you know -- we're hoping will be a component of the overall plan for making Lawn & Garden a stronger business.

Okay, that's helpful. And then if I could focus on one Lawn & Garden for one second, I know you've -- you all spent a good bit of time there looking at options, evaluating different pieces, and thinking about potential outcomes. Could you maybe give us a sense of how business sits right now with respect to where the different elements are?

I think of the three -- maybe I'm thinking this incorrectly, but the three main channels you sell through, whether it's through the nursery channel, whether it's through the grower channel, or whether it's, for lack of a better term, some of the branded products that you're selling out, the retail-oriented stuff.

In relative size, how does the -- which are the biggest? Which are the smallest? Which ones are you doing -- are doing well that you -- businesses you like? Which ones are struggling more?

You want me to answer that?

Go ahead.

You know, I would say I think we talked in general terms about the size of those segments.

I'd say around two-thirds of that business is what we call greenhouse where we sell to growers. The second largest part of that is our nursery business, which tends to sell to nurseries that serve new housing, and the smaller part of the business is what we call retail, which is selling essentially aftermarket pots to the retailers to sell to consumers.

Probably hit the hardest over the last several years has been the nursery business, and I think that's been a function of the housing market. And it has been the function of some of the restructuring that we've done in the past in terms of trying to address kind of our plant manufacturing infrastructure in that business.

Our actions to optimize the business are in every one of those segments.

In terms of the specifics on pieces of business that are struggling or things that are generating the greatest amount of attention in this plan that John just mentioned, I don't think I want to get into the specifics of that at this point. I think over the next few quarters, that's an intense part of our focus and we'll have more to say as we go forward on that.

Chris, let me just add that, as David just said there, we realize that our Lawn & Garden business is not covering the cost of capital.

We've spent a lot of time here over the last several months coming out of our strategic meeting with our Board, and as I said in the prepared remarks, we continue to work on it. We've seen some improvement, but overall there's still a major opportunity there.

As we go forward and as we have something that's we think is -- certainly would be credible for shareholders to know and understand, then we're certainly going to let everybody know exactly what we're doing there. We're just not ready at this point.

That's helpful. I guess where I was coming from is there probably are some pieces within those three segments that earn their cost of capital and some that aren't. Obviously, the pieces that need the most attention, that's helpful.

Right, right.

(Multiple speakers) question is as you start to take a look, I know it's very early in the process -- or actually two last questions. As we start to look at 2013, early thoughts as to what capital spending might be like next year? Should we anticipate something similar with half of that again going for new product development, or how should we think about capital going forward?

Take just off the top of our hat, probably we're in the same range as we are this year.

We are going to spend some additional capital next year around IT. We've got systems that are needing some work. In all of our operating businesses, that's planned for not only 2013, but also 2014 and 2015. So there's some significant capital that will be spent there.

You know, the new product introductions or innovation that David talked about certainly requires capital for tooling. So I would say at this point probably anything, from a modeling standpoint, probably the same level of capital as 2012.

And the last question I had was, when I look at the cash flow statement, acquisition of businesses in the quarter, it was $3.4 million. I'm assuming that was all the Brazilian material handling piece you bought. Jamco, will that show up next quarter or was that in there as well?

Jamco will be the next quarter -- go ahead, Gregg.

Yes, hi, Chris. This is Gregg.

Welcome, I apologize. Welcome aboard.

Thank you, thank you. Jamco will appear next quarter, and in the cash flow, you're right, the $3.5 million on the acquisition of net cash acquired was the cash -- was the assets acquired, along with we assumed debt of roughly $27 million, $26 million. Those combined make up the line in the cash flow related to the acquisition of Novel.

You'll probably recall that we paid just over $27 million for the business. The sum of those two lines equals just roughly $30 million. The difference was a result of purchase accounting adjustments primarily related to working capital.

And could you -- maybe it's too early. I know you don't have the Q or the stuff all finalized yet. Can you give us any sense both with Jamco and with the Brazilian piece of maybe multiples that you paid, what that's like, so we could get a sense as to what to expect.

Yes, I don't think we want to go down the path of the multiples, given the fact that we continue to look at other possible targets and have that impact our ability to structure those deals.

Yes, Chris, if you go back to -- in my part of the presentation, slide number four where we talk about growth platforms and you start looking at that, you'll see that in the material handling segment where both Jamco and Novel sit that that is a growth platform for us. So as we look down the road at making potentially other small bolt-on or enabling acquisitions, we probably don't want to be publicly addressing what kind of multiples we've paid. That's just kind of the way we look at it.

Okay. Thank you. Good luck.

Adam Josephson, KeyBanc.

Thanks, good morning, everyone (multiple speakers). Gregg, welcome.

Thank you.

John, you adopted a 10b5-1 plan in conjunction with the share buyback plan about a month ago. Was there anything to the timing of that announcement and do expect to repurchase shares at roughly current prices? I know you bought back a couple million shares last year at $10.50, on average, and shares are appreciably higher than that today.

Yes, we did adopt that plan as part of the original plan that was started last year.

We currently, at the current stock price, probably are not going to be purchasing shares back. It certainly is depended upon whether it's makes sense for us and for -- for the Company and for the shareholders, and I think at the current share price, it does not recover the cost of capital.

So we are prepared, though. We felt like we had somewhat of a dip in our stock price. We weren't quite sure exactly why, but we wanted to be prepared to see what we could do if necessary.

So I think at this point, Adam, you know, unless there's another major share price reduction, we have it ready and would be ready to go if that happened.

Terrific, thanks, John. What was the unfavorable customer mix you referred to in Engineered Products, and why do you expect some softening in demand in RV and custom markets?

Go ahead, David.

Engineered Products, we have three businesses in there. Let me adjust the RV and custom products.

That business has been, actually in the first half of this year, growing reasonably nicely. We're seeing some slowing in that marketplace. I think it's consistent with two things, one, the general economy and two, we start to go into seasonal weakening toward the end of the year in that business as well. We're seeing some customers take some plant shutdowns and things like that. So I think that's sort of the basis behind comments around the RV and marine market.

In terms of the mix, I think we mentioned in the end of last year in our patch rubber business we picked up what we call some contract manufacturing type business, and that has been business that's been good for us. It's been in our results all year, but it's not kind of the traditional margin proprietary product business that we typically produce and sell a lot of that out of that operation. We expect to see it continue. It's going to start showing comps. The comps will start changing in that business because we picked it up in the latter part of last year. And I think that's really the driver of the mix difference that we're talking about.

That's helpful, David, thank you. In material handling, margins have been increasing substantially over the past several quarters and are back to 2007 levels now. Do you consider these levels sustainable or are they likely to go higher? Can you just give me some sense of what you think normalized margins for this business may be?

(Multiple speakers). Go ahead, David.

Margin improvement, Adam, as you know, has been a big focus of our business.

We've done it through a number of different initiatives. One initiative -- I'm sort of broadening this a little bit. One initiative has been making sure that we are pricing effectively with changes in revenue cost, and I think that's applied to all of our businesses, including the material handling business where we're continuing to use price mechanisms and passthroughs and things like that in the business that have helped us over time address the margin in that business.

The second has been the operations excellence initiatives where we're driving material costs down and productivity up, and we've had substantial improvements in the material handling business. We've had good improvement across all of our businesses, but substantial improvement, particular this yearly, in the material handling business with our operations excellence initiatives, both in material costs and productivity.

The third component of that has been doing less low-margin business and doing more high-margin business, and that's been a big part of the margin improvement as well.

Because we have been doing all of those, it's getting more difficult to create the kind of margin improvement in that business that we have created, and so I would tell you that it's going to be -- we're pushing up towards what we think are very good margins for that business and we don't see that while we have a focus to continue, always continue, improving the margins, we don't see ourselves being able to capture the same rate of improvement that we have over the last eight quarters, and that's going to start -- it just gets harder and harder every quarter going forward, and I think we're sustainable. We've got some good things going on in the business. We're going to continue driving it. But we're getting into thinner air.

Got it, that's helpful, David. And just two more on material handling. One, what level of volume growth do you expect on a normalized basis in that business, and why? Do you expect continued growth in excess of GDP because you anticipate continued share gains from other types of packaging, be it wooden pallets, [plytek], et cetera?

I think if you take economic effects out because, remember, the material handling business is largely a capital purchase by our customers, so it's going to -- it's going to follow a bit of a capital spending cycle or a corporate profit cycle.

If you take that effect out, we would say that this business should grow from our innovation efforts. We're focusing our innovation efforts substantially on what we call the food, ag markets, as well as some other markets, in products that we call liquid and semi-liquid, as well as bulk flowable solids, and those are good markets for growth in displacing sort of traditional materials like wood and cardboard with returnable plastics that can be a better economic proposition as well as sustainable choice for our customers.

So we expect to see some growth in that area. We've had a good last couple of years with those markets, offset somewhat by backing out or decreasing our presence in low-margin markets, but we expect to see those markets over time continue to grow as a result of our efforts.

Thanks, David. And just lastly related to that, how much more share, do you think -- not just Myers -- but returnable plastic containers have to gain in the food and ag markets, and why?

This is John. I think, and we talk about this all the time, I still think there's a long runway in usable containers in food and ag markets.

There is still, believe it or not, a lot of industry -- food industry that uses cardboard and wood. It's changing, but it's not changing fast enough for us. But it certainly is an opportunity for us. I think there's quite a long runway, actually.

Terrific. John and David, thanks very much.

You're welcome.

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

If we're looking at the profitability on Lawn & Garden and the improvement from the second quarter, some of the things that you pointed out -- substitution, operational improvements -- are things that move the needle over time, but aren't necessarily a big influencer over a three-month period. Was there something seasonal in the third quarter that allowed you to substitute more that may not occur once you get into the brunt of your business in the fourth quarter and the first quarter? Can you help me out with that?

Go ahead, Dave.

I would say that we had improvements, you know, fairly broadly in that business in terms of our cost position, and I'd say it fell into three areas.

It fell into our SG&A costs, as well as our manufacturing costs and our improvements in manufacturing costs, the big drivers are material and productivity. We had a restructuring in our operations that took out a fairly substantial amount of indirect costs in the second quarter of this year, and we're seeing some benefits from that in the third quarter and we believe that those are sustainable as we go forward.

And (technical difficulty) looking at the distribution segment and the decline sequentially from the second quarter on similar revenue numbers? Can you talk to that?

What we saw on the distribution business was a combination of a couple of things. We saw a decline in the market in general. I think we talked about replacement tire sales and we're seeing externally, particularly as we serve our customers. And we saw that in our sales.

We saw that exacerbated a little bit in our sales in the third quarter relative specifically to equipment sales. We had lower equipment sales than we would normally have, and that's part of something that's somewhat unique to our business. We're trying to make the equipment part of our sales a better return than it's been. And I expect to see us growing our equipment more effectively with the market.

For us to grow in that business or to offset the declines that we're seeing in replacement tire sales, we're going to have to grow share. And we've taken some actions to do that going forward and we think we can be successful with that. But it will require that we grow share.

The one last thing I would say about the third quarter is we have in the distribution business an IT project. We're revamping our IT systems in distribution to put us on a solid footing and to give us the kind of capabilities that allow us to increase the value that we bring to our customers in the future, and we incurred some IT expense in the third quarter. We expect that will continue over the next few quarters as we bring that project through and into completion in the first part of the first half of next year.

And you may have started answering the next question, which was if we're looking at corporate and other expenses even X-ing out the severance costs, this was as high a number as I've seen it, about $8.8 million. Is this IT related, restructuring related, acquisition related costs that are now in there, or is something else going on?

Hi, Chris, this is Gregg. There were a number of things, as you mentioned. We had the IT costs came in, as well as some acquisition costs, and then we also saw increased spending in healthcare. All three of those impacted us in the quarter.

Would you expect them to continue at a similar rate?

It's hard to say, quite honestly. Healthcare, for most companies, is the biggest wild card. The IT costs, as David mentioned, those will continue for a while. I think both David and John touched on the fact that we're going to be doing some capital spending over the next three years to upgrade our systems across the board, so we will see that continue for the next couple of years.

And then, on the acquisition costs, those really are dependent on what deals we're pursuing at the time.

All right. I appreciate the (technical difficulty) clarification. Thanks for your time. (Multiple speakers)

Thank you. There are no further questions at this time. I would like to turn the floor back over to Ms. Vinay for any closing remarks.

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

Thank you for joining us and have a great day.