Myers Industries Inc (MYE) 2013 Q2 法說會逐字稿

Greetings and welcome to the Myers Industries second-quarter 2013 earnings call.

At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Monica Vinay. Thank you, Ms. Vinay, you may begin.

Thank you, Kevin. Good morning and welcome to Myers Industries second-quarter 2013 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; Gregg Branning, Senior Vice President, Chief Financial Officer, and Corporate Secretary; Joel Grant, Senior Vice President and General Manager of our Material Handling segment; Chris Koscho, Vice President and General Manager, Lawn & Garden segment; and Todd Smith, Vice President and General Manager, Distribution segment.

Earlier this morning we issued two news releases. One outlined phase two of our restructuring of our Lawn & Garden segment. The other release was our report covering second-quarter results. If you have not yet received copies of these releases, you can access them on our website at www.MyersIndustries.com.

This call is also being webcast on our website and will be archived there, along with a transcript of the call, shortly after the event.

Before I turn the call over to management for remarks I would like to remind you that we may make some forward-looking statements during the course of this call. These comments are made pursuant to the safe harbor provisions of the 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 filings.

I am now pleased to turn the call over to John Orr, President and Chief Executive Officer. John?

Thank you and good morning. It is a pleasure to have you join us. Gregg and I will discuss the second quarter then we will open it up for questions.

As Monica mentioned, we have the segment Vice President and General Managers joining us today. They will be available to answer questions regarding each of their segments during the Q&A part of the presentation.

Please turn to slide three. First, I would like to discuss the second phase of our Lawn & Garden segment restructuring that was announced this morning. Phase two is targeted to deliver annual profit improvement of $8 million and is comprised of a number of actions, including the closure of two manufacturing plants. This restructuring will not only lower our cost to serve but will better position us for growth on the West Coast.

On February 13, 2013, we announced phase one of our restructuring, which is a product line simplification that is expected to generate annual profit improvement of $5 million. We are pleased with the progress we're making on phase one as it is already generating some benefits and is expected to generate approximately $2 million in 2013 with an additional $3 million in 2014 for the total of $5 million annually.

The combined annual profit improvement from both phases of our restructuring of $13 million should enable our Lawn & Garden segment to generate returns above the Company's cost of capital in 2015 and increase the value of the business.

On a pro forma basis, the profit improvement from both phases of our restructuring initiative is expected to result in more than a 350% increase over the Lawn & Garden segment's 2012 operating earnings, which is an adjusted EBIT increase from $3.5 million to $16.5 million. And as you will see when Gregg reviews the second-quarter results by business segment, the Lawn & Garden segment showed significantly improved operating results again this quarter compared to 2012.

Now let's review our results for the quarter. Please turn to slide four in the presentation.

Net sales in the second quarter of 2013 increased 12.7% to $204 million from $181.1 million in the second quarter of 2012, reflecting strong sales in the Material Handling segment during the quarter. Gross margin was 27.3% in the second quarter compared to 26.2% in the second quarter of 2012. Productivity improvements and material cost savings led to the increase in gross profit margin.

Reported net income for the quarter was $8.3 million, or $0.25 per diluted share, compared to net income of $5.7 million, or $0.17 per diluted share, in the second quarter of 2012. This is a 47% increase in earnings per share year over year.

On an adjusted basis, which excludes restructuring costs and other special items, our earnings per diluted share in the second quarter were also $0.25 compared to $0.17 in the second quarter of 2012. I am pleased with the progress we made a growing our second-quarter results, which reflects the strong performance of the Material Handling segment and the significant profit improvement in our Lawn & Garden segment.

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

Thanks, John. Good morning. I will comment first on the overall financial results, which are summarized on slide four of the presentation. After that I will review the results by business segment.

I will review the items on slide for that John didn't already discussed. SG&A expenses in the second quarter of 2013 were $42.7 million compared to $37.4 million in the second quarter of 2012. The increase year over year was driven primarily by incremental SG&A expenses resulting from the acquisitions of the Novel and Jamco businesses and information technology costs associated with the ERP upgrades we had mentioned in previous quarters.

Our effective tax rate during the quarter was 30.8%. We anticipate the effective rate for the full year 2013 will be 37%. Please turn to slide five of the presentation.

Cash flow provided for operations for the six months ended June 30, 2013, was $30.1 million compared to $7.9 million during the first half of 2012, reflecting the efforts we have made to better manage our working capital. Capital expenditures totaled $10.2 million for the six months ended June 30, 2013, compared to $8.4 million in the first six months of 2012. We estimate that capital expenditures in 2013 will be approximately $30 million to $35 million and that more than 70% will be for growth and productivity projects.

We continue to maintain a strong balance sheet, which is reflected in our low net debt to total capital ratio of 23.9%.

Now let's turn to our business segments and their performance as summarized on slides six through nine of the presentation. Results are compared to the same period in 2012 and I will be referencing the adjusted pretax income information by segment as it appears on the reconciliation of non-GAAP financial measures included on slide 13 of the slide presentation and in the earnings release issued earlier today.

In Material Handling segment net sales for the second quarter increased 39% to $83.8 million compared to $60.3 million in the second quarter of 2012. Sales generated by the Novel and Jamco acquisitions and organic growth led to the increase year over year.

Adjusted income before taxes in the Material Handling segment was $11 million in the second quarter of 2013 compared to $9.2 million in the second quarter of 2012. The significant sales improvement coupled with the profits from our acquired Novel and Jamco businesses led to the 20% increase in net income before taxes during the quarter.

Net sales in the second quarter in the Lawn & Garden segment decreased to $40.9 million from the $42.5 million in the second quarter of 2012. Softer sales volumes at the big-box retailers contributed to lower sales during the quarter.

Adjusted income before taxes in the Lawn & Garden segment was $1.2 million in the second quarter of 2013 compared to a loss of $1.5 million in the second quarter of 2012, thereby improving $2.7 million year over year. The segment reduced costs by driving productivity improvements and material cost savings.

Net sales in the Distribution segment were $45.9 million in the second quarter of 2013 compared to $44.2 million in the second quarter of 2012. Sales of new products coupled with market share gains in equipment sales led to this increase in sales.

Adjusted income before taxes in the Distribution segment was $3.9 million in the second quarter of 2013 compared to $4.1 million in the second quarter of 2012. The Distribution segment continues to be impacted by the slow replacement tire market. Additionally, costs associated with an upgrade to the segment's information technology segment contributed to the decline in the adjusted income before taxes during the quarter.

Net sales for the Engineered Products segment were $37.6 million in the second quarter of 2013 compared to $38.6 million in the second quarter of 2012. Strong sales in the recreational vehicle and marine markets were slightly offset by lower custom sales during the quarter.

Adjusted income before taxes in the Engineered Products segment was $5.1 million in the second quarter of 2013 compared to $4.7 million in the second quarter of 2012. Productivity improvements and a favorable product mix led to the increase in income before taxes.

That concludes the financial remarks review. I will now turn the call back over to John for some outlook remarks. Thank you. John?

Please turn to slide 10 of the presentation. As we look forward to the second half of the year, we expect the following. Our Material Handling segment the second-half results will benefit from our 2012 acquisitions and new product introductions as we expect the full year to be another year of improved earnings year over year.

Our Lawn & Garden segment we expect to continue to increase profitability in the second half of the year through continued cost reductions, material substitution, introduction of new products, and execution of both phases of the segment's restructuring initiative. In our Distribution segment we expect that continued market share gains and new product sales will more than offset an ongoing slow replacement tire market, resulting in increased profitability second half of the year. Finally, in our Engineered Products segment we anticipate continued strength in the marine and recreational vehicle markets to benefit the second half of 2013.

As we stated in this morning's earnings release, overall we expect continued year-over-year profit improvement over the next two quarters resulting from our recent acquisitions, organic growth, continued re-investment in our operations, cost savings, new product introductions, and the expected benefits from our Lawn & Garden segment restructuring initiatives. We are pleased with our progress and expect it to continue.

That concludes management's presentation. I would 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. As a reminder, in addition to John and Gregg, the following segment Vice President's are also available to answer questions -- Joel Grant, Senior Vice President and General Manager of Material Handling; Chris Koscho, Vice President and General Manager of Lawn & Garden; Todd Smith, Vice President and General Manager of Distribution.

Go ahead, please.

(Operator Instructions) Adam Josephson, KeyBanc.

Thanks. Good morning, everyone. Congratulations on a very good quarter.

Couple questions; one for Gregg on working capital. You talked about an increased focus on working capital. What might that mean for your free cash flow this year and beyond, relative to historical levels for the Company?

I think that the big thing that we have seen in working capital is we are doing a better job of managing it. We saw less use of working capital through being able to reduce our receivables and better managing our payables and inventory as well.

As to going forward, we would expect the second half of the year to be stronger than the first half of the year. And for the full year we would expect our cash flow from operations to be up mid- to upper-single digits and continuing to improve as we go forward in out years.

That is helpful. John, one on Lawn & Garden and the restructuring. You talked about the pro forma EBIT in 2015 of $16.5 million compared to $3.5 million in 2012, which would represent roughly $0.25 a share of improvement which is more than a quarter of your EPS in 2012. Is there any reason not to believe that your earnings power has increased by that amount?

There is no reason to believe that it hasn't increased by that amount. I mean our expectation, Adam, with both of these projects that we are working on is that we will have complete success with both projects and meet the objectives that I stated in my prepared remarks.

Just a couple of follow-ons on that. John, what led you to the decision that you could [create] the greatest value of Lawn & Garden by restructuring the business as opposed to other options?

We looked at many different options and, again, there is still no final decision about ultimately with Lawn & Garden. But we did come to the conclusion was that the best shareholder value was to fix the business, get the business to where it was earning better than the cost of capital. Once that is completed then, again, further determination can be done on the business.

Great. Then just lastly, John, what are your preferred uses of cash at this point? How would you rank your options in terms of reinvestment in the business, acquisitions, and repurchases? Do you think the market appreciates the scope of these cost savings opportunities that you have elaborated on in Lawn & Garden?

Adam, as we have said in the past, we take a pretty balanced approach to capital allocation. We continue to see opportunities for bolt-on acquisitions. They will be a priority for us as long as we find ones that fit our operations, they are quickly accretive, and they generate returns above the cost of capital.

I think we are also going to continue to be focused on returning cash to shareholders through share repurchases and dividend increases. I would hope that our shareholders see value in those plans as priorities for cash.

I will get back in the queue. Thank you.

Chris Manuel, Wells Fargo.

Good morning and congratulations on a very strong quarter. A couple questions. First, let me start with if we go through each of the businesses -- and I recognize we have got a couple, several of the business heads sitting there, so hopefully they can help with this.

One of the initiatives that the Company has undertaken over the last few years has been developing new products and increasing that as a portion of the portfolio. Could you maybe give us a sense of through the quarter and where you are year-to-date on organic volumes in your segments, and where you are with new product introductions?

I think, if memory serves, the target was to get to roughly 10% of the Company -- or 10% of sales. How progress is towards that and what you anticipate over the future.

Well, Chris, this is John. Why don't I have Chris and Todd and Joel just kind of speak to that? And then I will come back and kind of finish it up. Go ahead, Chris.

This is Chris Koscho. New product sales for us, as we discussed in the last review, are really for us developed in the second half of the year. So we have made significant investments to bring new products to market really in all three of our segments, both greenhouse, nursery, and retail.

As for the second quarter, I would tell you our organic growth we were essentially flat. As we mentioned in the talking points, our greenhouse segment was really the driver of the decline year over year. Mainly due to planned production reductions in the big-box segment and those greenhouses that serve the big-box segment for us.

So, from a new product perspective, what we will see in the Lawn & Garden segment is really going to be driven by activity in the third and fourth quarter.

Todd, why don't you talk about --?

Sure. In the Distribution segment -- I guess I will give you a little comparison with that question to the market. So in the second quarter we experienced some growth or some single-digit growth in the replacement tire shipments.

Really we are performing against the market through our competitive service offerings. And in new product offerings we were able to trend above the market in that and expect to be able to do that throughout the remainder of the year with the new product offerings.

Chris, this is Joel Grant. In Material Handling we did not have any launches in the second quarter. We do have some plan for the second half.

We are enjoying sales from the products that have been introduced to the market. We are on our target of 5% to 6% of sales in the first half and we expect that to probably jump up a little bit in the second half. But we are on our target, as we see it, for the year.

Chris, this is John. Just to kind of wrap all that up, we are on target to introduce 60 new products this year. In Q2 sales from new products and services were about 6%.

6% is our goal. The 10% that you mentioned is our internal stretch goal, but if we can hit between 6% and 10% we are very pleased with what we are doing.

Okay, that is helpful. If I could circle back to the Lawn & Garden segment, and I guess this question probably more for John because you have been -- you have a history with the business for longer than Chris.

But if I look at what you are doing here this sounds like very good return on some of the restructuring and some of the efforts here as I go through the slide. So if you could help me maybe, or maybe Chris could help with this too, some of the phasing as I would anticipate how this flows out through -- is it through 2014 or 2015?

So if we were at $3.5 million EBIT in 2012 I think you mentioned that -- I am looking back in my notes -- $2 million savings would come here in 2013, $3 million more in 2014 from phase one. How does phase two roll through? Is it all in 2014, or is there some of that 2014 such that we get to this, call it, $16.5 million run rate -- or $16.5 million is the number for 2015? If you understand the question; I don't know if that's making sense.

We got it. I think I will have Chris answer the question.

If I could just speak to each phase and then we can kind of summarize it in total. Phase one that we discussed in the first-quarter review really was a product line simplification and it really involve reducing the cost that supported the complexity that we had acquired over years of acquisitions.

In that project we basically looked at our complexity and, ultimately, the cost that was generated to support that complexity and started a project that we did launch in the second quarter and did start to harvest those savings. We will see $2 million of that savings in 2013. We will see the remainder of that $5 million in 2014. So the first phase as we looked at restructuring the business was really focused on simplifying the business.

As we moved into phase two it became apparent that really a cost structure and a service model adjustment was required to not only serve the current market, but to serve the market that we have identified as the growth potential as we move into 2014 and 2015. So as we talk about phase two we will see some savings as we -- slight savings, some savings as we look at the second half of 2013. We will see the remainder and all of the savings in 2014 and really beyond the run rate that we have identified as we start January of 2015.

Chris, this is John again. I also wanted to just add that, although we have announced this restructuring and it is the second restructuring, it is not just cost cutting that we are doing in this business. We are also in a position to grow this segment and to do that that growth is on the West Coast. That is why we are opening up our facility on the West Coast.

I'm going to ask Chris again to talk a little bit about why we are doing that on the West Coast as opposed to when we had an operation in, say, Waco, Texas. Why the difference.

So, Chris, for us the West Coast market has really changed in the last five years. When we looked at the West Coast market multiple -- several years ago the nursery business was in shambles, decline. At that point there was a lot of uncertainty in the greenhouse segment.

The big-box market, the big-box growers were being pushed to standardize on a platform that really would become a national platform that exists really east of the Rockies. That didn't happen. The cost to convert that platform became significant and the West Coast platform will remain.

So as we look at where the growth is in our segment, we have targeted that growth on the West Coast in really three buckets. We expect to see the nursery market continue to generate organic growth as we have the last two years. And we also believe a second bucket is by being within that 24- to 48-hour window on the West Coast we have identified growth potential in that second bucket as well.

I would say the third bucket is the greenhouse segment as we position our business to kind of serve that unique platform that we have forecasted and expect to remain really the standard on the West Coast.

If memory serves, you used to have a facility in Sparks, Nevada. That probably goes back four or five years. Is this --?

Yes, it is the same facility. We are just going back in and opening it up.

Okay. This was the second part of the question I wanted to ask with respect to John, and this is where you have the history maybe to help with this part. But if I look at what you have done in the past from when you put the businesses together in 2007/2008 and then did some restructuring 2008/2009 and actually did have profits I think as high as almost $25 million in 2009.

So I guess my question really is what -- I believe that you can get these savings out. I believe you will be able to do this. But what gives you more confidence today than where you were in the past that A) you can achieve these savings synergies or elements of restructuring and then B) that it is sustainable? What do you think about that?

Yes, yes. Again, let's just kind of walk back into history. In 2007 we made the purchase of ITML, which was our largest competitor at the time. If you remember, Chris, we were going through a go-private at that time and we were encouraged by the go-private to add to our Lawn & Garden business. I think they felt there was a rollup there.

Of course, we did that and, of course, in 2008 the whole world melted down. Things weren't so good.

We did make money in 2010. We made a lot of money, but again that was done because we were raising prices at the time that resin was crashing. Unfortunately, next year we paid for that with our customers.

So that brings us to today and why do I think and why does this whole team think that we can do what we are going to do? And that is that we are going from two plants to one plant with this move. We have got the right team in place to manage this whole restructuring, and in fact, we have enlisted professional project management to help.

I think Chris Koscho's explanation of why the West Coast market is so important to us and the change that we thought would happen out there that never did happen, but if it would have would have allowed us to have the same type of product over the whole country versus the change there is in California. I think all of these things together give me a much better comfort feeling that we are going to meet the objectives that we have and, hopefully, beat the objectives we have for these two projects.

So I am bullish on the Lawn & Garden business. That Chris and I and his team were just at the largest show in Columbus, the largest horticultural show, over the weekend and earlier in the week. I think Chris will tell you that it was -- some very strong sentiment about the business and expectations that the market is looking better.

So I guess maybe in a long roundabout way that is the answer.

Okay, that is helpful. One last question and I will turn it over. That is during the quarter you -- your Chief Operating Officer has moved along and went to another company here in town. Could you maybe give us an update or some thoughts as to whether you intend to replace him, or where you are in that process, or what --?

No decision has been made at this time.

Okay, thank you.

Chris Butler, Sidoti.

Good morning, everyone. I was hoping you might be able to quantify the top-line addition from the acquisitions in Material Handling and give us a little view on how those are performing for you?

Hi, Chris, this is Joel Grant. Looking at the quarter, we are discussing Q2 sales of the combined Novel and Jamco were $15.6 million. On a year-to-date basis the sales of those combined was $27.6 million, so those sales are slightly ahead of our expectations.

We are seeing nice performances from the business. And while we don't normally give detail about pieces of the segment, we do believe it is important to let shareholders know how they are performing. This quarter they have contributed $0.02 per share to the earnings.

And in the press release it was mentioned that there was some shift of volume into the second quarter on Materials Handling. Could you quantify that as well for us and talk to the implications looking forward?

Yes, in the Material Handling business that is quite normal. The seasonality of some of our business, the capital nature of some of our business there are shifts that go on throughout the year.

So we did experience a little bit of adding Q2. I would say that looking beyond that we had high single-digit organic growth within the quarter and we would look for that to continue through the balance of the year.

Chris, this is John Orr. Just to kind of follow up on what Joel is saying there, in the Material Handling business, I think as you know, it's a high CapEx business for a lot of our companies. And so in some cases they order and we expect them to take the order by the end of the quarter. Then for whatever cash flow reasons they put off taking it until the start of the next quarter.

So as Joel said, we get a lot of that variation back and forth. But I think it is more excess noise than anything as far as our long-term strategy goes for the business.

Okay. Looking at the profitability in this segment, year over year we are down a little bit again. If I remember correctly there is generally product mix that factors in. Could you speak to that? Could you speak to the competitive environment as well?

Well, in the mix I think we said on the last call there is a higher amount of automotive. That is one of the markets that is really still doing well this year, so mix plays a role in it.

We have talked in a couple of the calls about a couple of the projects that won't repeat. Those are still issues, headwinds that we face to go through the completion of the year. But, again, I think we are looking to high single digits through the rest of the year.

On the competitive market dynamics there, I guess what I would say is we really don't have any new entrants to the market. There is no offshore that is really affecting us and so we don't really see any change in the dynamics, the number of people in the space, and that is not looking to change.

The other thing I would say is very expensive -- as you look at some of the things that we do in material handling, very expensive tools, very expensive equipment. So somebody has to think very long and hard about jumping into this market and that tends to limit some of the change in players and some of the change in competitive dynamics in the market.

Do you match your operating income from 2012 this year in Materials Handling?

We typically wouldn't disclose something like that, Chris. This is Gregg. We expect to have another strong year in Material Handling.

And just finally, shifting gears, Engineered Products continues to be strong from marine sales. I think the expectation was for that to slow down this year and you seem positive even looking into the back half of the year. Is there still a slowdown to come? Could you talk to that a little bit?

Chris, this is John. We still continue to see growth through the back half of the year in marine and RV both. It appears that there has been pent-up demand for Marine and towable RVs, and so our Ameri-Kart business is on a record pace this year with providing products to both of those segments.

So looking into the crystal ball it still looks fairly good through the end of the year.

I appreciate your time.

Gary Farber, CL King.

Good morning. Just a couple of questions. Just on the Lawn & Garden restructuring, what is the biggest logistical challenge in accomplishing the shifting -- closing two plants, opening a new one?

I would say the biggest logistical challenge will be continuing to serve the market as we are moving the equipment. We have outlined a day-by-day timeline and schedule of what we expect from a capacity needs perspective. We have looked at that daily. As we move the equipment and start out that equipment in the new operation the biggest logistical challenge will be serving the market as we are in season.

But we believe we have planned and prepared and built the contingency plans to see that that happens. And we are able to serve the market this season in a flawless manner.

What about labor? Is there any issues that you have to hire people for the new plant or things like that?

Absolutely. We will have to increase staffing in our Middlefield, Ohio, operation and certainly today as it exists Sparks, Nevada, will require staffing as well. And that action will begin ASAP.

Okay. Then also can you speak to -- I don't know if you touched on this -- share buybacks? Did you do much in the way of share buybacks, if so, what price? And just what your overall liquidity is currently?

So share buybacks -- Gary, this is Gregg. We purchased just under 102,000 shares in the quarter for $1.3 million. Year-to-date under our 10b5-1 we spent roughly $3.3 million to repurchase just under 238,000 shares at an average price of $13.87.

At the end of the quarter we had roughly 2.5 million shares remaining under the authorized purchase plan. We ended up with net debt, as you saw, just over $70 million so we have -- we are in a very strong position from a balance sheet perspective.

So just between the credit line and the cash how much do you have?

Our credit line, our revolver is $180 million and our senior debt is $35 million, so liquidity that would put us at $215 million. We had cash of roughly $22 million at the end of the quarter.

Great, okay. And acquisitions, because the ones you have done lately sound like they are integrating fairly well; just an update on the marketplace for that.

Actually earlier in the year, as you probably know, there was a lot of PE guys out into the market. They have got a lot of money and they are running out of time on their usual seven- to 10-year investments, so they have to spend some money.

We haven't seen a lot of other types of acquisition activity, strategic activity. Certainly, as I said earlier, we will continue to look for small bolt-on acquisitions that has become a priority. As long as we can make our purchase and they become quickly accretive, they will generate returns above the cost of capital.

Okay, thanks.

Gary, this is Gregg. I want to circle back on your question on labor for Lawn & Garden that Chris mentioned. While we will be adding headcount in the two locations that Chris mentioned, one of things that is important to understand in this project phase two is that we will have a net decrease in headcount, a fairly significant one. So don't want you to walk away thinking it's a replacement.

Right. Sure, thanks.

Brian Sponheimer, Gabelli & Co.

Good morning, John. Good morning, Gregg. Most of my questions have been answered.

Just on the distribution side with replacement tires sales still being somewhat of a headwind, you guys mentioned that you should see a little bit of an improvement in the back half of the year. Just kind of talk about the puts and takes within that segment, what could help drive that.

This is Todd Smith in the Distribution segment. We did see single-digit improvement for the second quarter and were able to add to that. At this point, the expectation in the market that we have is that it remains flat for the full year.

But with our current trend we expect to be able to trend ahead of that for the year with our service offerings and new products and our focus on the large regional and national accounts. If the market does continue to recover, we think we are well-positioned for growth for the year.

Okay, thank you very much.

Adam Josephson, KeyBanc.

Thanks again, everyone. Appreciate it. Just two follow ups. One, Material Handling, forgive me if you have addressed this, but your opportunities for organic growth in the second half of the year and beyond, where do you think they will be -- they are most notable?

Where it will be most notable? Again, I think the automotive strength continues; that is one of the markets that separated itself.

Our strong focus continues to be food processing and agricultural. Those are the places we are looking to make conversions of (inaudible) and other forms of packaging. That is where we will be focusing for the most part.

And, Joel, do you expect those opportunities to be appreciably different than what they have been over the past couple of years? Do you see similar runway over the next one to three years? Or how do you see that changing, if at all?

I think that the new product part of it will be similar to what it has been. Again, it is hard to tell in the automotive market what the future might bring. Some of the things we hear is that it could begin to take raw agricultural things. It could depend on the weather and depend on things that are out of our control, but I think it would be normal to historical patterns.

Thanks for that, Joel. John, one last one for you, just back to capital allocation for a second. Your shares have appreciated substantially since you reported a quarter ago. They were [13], now they are [18].

Has your inclination to repurchase shares changed at all over that period? And, again, how do you view share repurchases today relative to your other options?

Well, again, we continue to look for opportunities, Adam, to buy back stock and we try to time our purchases to add value to those shareholders that continue to hold our stock. That is a discussion that I have with the Board each and every quarter about the use of our capital. Again, we have got that balanced approach to it.

We are trying to grow the Company and we feel that as long as there is opportunities for the Company it is the best use of capital and, obviously, the best opportunity for shareholder value. So that is the current and expected going forward plan.

Great. Thanks very much, John.

Chris Manuel, Wells Fargo.

One quick follow up with respect to some of the restructuring things that kind of struck me. As you are looking at some of the improvements heading into 2015 in the L&G business, one of the areas that you targeted was specifically some growth on the West Coast piece.

How much of the, call it, $16.5 million total that you anticipate having, or $13 million of savings, is predicated upon the growth in the business? In other words, if the business stayed static at the size it is or what you are doing today, what might it look like? Or how might I think about how much growth is a contributor to between here and what you would anticipate in 2015?

Chris, this phase one and phase two model were built on consistent volume, flat volume so the savings that we have reported assume no growth. And that was really what we wanted to do and kind of build these projects to fix the cost structure to support the business today, but more importantly, to support the business for growth. So these reported numbers assume zero growth.

As part of the project we wanted to position ourselves for growth. Again, we wanted to position ourselves for growth on the West Coast in those three buckets that I outlined earlier. But these numbers include zero assumption of growth.

Then it would be fair to say that it would also not assume any degradation? It would kind of assume a static size business. If you were able to grow, organically grow other pieces of the business on the East Coast or central US, or if that West Coast piece grows nicely there's upside then to those numbers. Would that be a fair way of thinking of the approach?

That is correct.

Thank you. That is all I have.

Chris Butler, Sidoti.

Thanks for taking my follow-up. Just wanted to touch on Distribution before we let you go. The volumes have been weak here for longer than I can remember Distribution being weak in the past.

Typically this is a very stable business. People do have to replace their car tires eventually. Tire wear has never been higher from reports that I have heard. When do we see this turn the corner to positive volumes again?

I guess from -- this is Todd Smith again. From a top-line perspective there is noticeable changes in the market for a long period of time now, and I guess some of the things that we have seen changes just with some of the technology changes and length of tire wear is having some effect on the market.

The tire pressure monitoring systems that were introduced in 2007 changes the customer. The consumer is knowledgeable on their tire pressure and low tire pressure leads to tire wear. And so it is hard to quantify the impact of that, but there certainly is an impact in the market from that perspective.

And so I guess I don't have a concrete answer and when that changes, but we know that is impacting the market. From a bottom-line perspective, as we get through our investments, and I know we talked on the last call around our IT investments, we expect that bottom line to start trending back to historical levels.

That is all I have. I appreciate it.

There are no further questions at this time. I would like to turn the floor back over to management for any further or closing comments.

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