Myers Industries Inc (MYE) 2015 Q2 法說會逐字稿

Greetings and welcome to the Myers Industries second-quarter 2015 earnings call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this comment is being recorded. I would now like to turn the conference over to your host, Ms. Monica Vinay. Thank you. You may begin.

Thank you. Good morning and welcome to Myers Industries second-quarter 2015 earnings conference call. I am Monica Vinay, the Vice President of Investor Relations and Treasurer at Myers Industries, and 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 the material handling segment; Alex Williamson, Vice President and General Manager of the distribution segment; and Mike Valentino, Vice President and General Manager of Myers do Brasil, Novel, Scepter, and Ameri-Kart.

Earlier this morning, we issued a news release outlining the financial results for the second quarter of 2015. 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 the call. These comments are made pursuant to the Safe Harbor provision of 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 are set forth in the Company's periodic SEC filings and may be found in the Company's Form 10-K filing.

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

Thank you and good morning, everyone. This morning, we reported strong second-quarter earnings per share growth, despite some headwinds in both our material handling and distribution segments during the quarter.

In our material handling segment we saw softer demand for our products in the agricultural, industrial, recreational vehicle, and marine end markets in the second quarter of 2015. In the agricultural side, lower commodity prices continue to impact capital expenditures in this and market, leading to decreased sales of our agricultural storage containers again this quarter. Some of those declines were offset by a shift in some customers' orders from the third quarter to the second quarter of this year. Although the shift benefited the second quarter, it will lead to lower sales of those products in the third quarter of 2015.

However, we are somewhat optimistic that the demand for our storage containers should begin to improve toward the end of this year. The segment also began the reintroduction of its legacy products in the third quarter as planned. Those products were lower margin than some of the segment's niche products will help to offset fixed overhead costs at the plant level when sales of those niche products are down, as well as providing the segment with an expanded product portfolio that will counterbalance periods of weak demand in those other end markets.

The distribution segment sales were slightly lower in the second quarter of this year compared to the same quarter last year due to weaker demand for some of the segment's tire repair and retread products. The segment has introduced a number of new products and services to offset some of its weakness, including the vending machine program we have discussed in recent quarters. That program is already leading to increased sales of our higher margin supply products while, at the same time, improving inventory management at new and existing customer locations.

We continued our focus on offsetting the weaker sales volumes through pricing actions, cost reduction activities and productivity improvements, and realized total savings of $4.5 million in these areas during the second quarter, most of which is reflected in our higher gross margin.

I would now like to turn the call over to Gregg, who will review our financial results for the quarter.

Thanks, John. Please turn to slide 3 of the presentation. Net sales from continuing operations in the second quarter of 2015 increased 7.6% to $164.3 million compared to $152.8 million in the second quarter of 2014. Sales in the second quarter of 2015 were negatively impacted by FX of approximately $5.8 million due to the strong dollar. The incremental sales for the quarter were primarily the result of continued strong performance from our Scepter business, whose sales were $28.6 million during the quarter, despite some unfavorable impacts on the foreign currency translation I mentioned.

Sales of new products which totaled 6.9% during the quarter also helped to drive the topline increase. Scepter sales and the new product sales during the quarter were partially offset by sales decreases in the agricultural and industrial end markets as a result of the softened demand that John referenced. Sales of our agricultural storage containers continue to be down significantly during the quarter despite customers' acceleration of approximately $5 million of orders into Q2 2015 from Q3 2015.

Sales in our Brazilian operations decreased year over year, primarily as a result of the strengthening dollar, which was impacted -- which impacted sales by $3.8 million during the quarter.

Gross profit margin from continuing operations was 30.8% in the second quarter of 2015 compared to 27.8% in the second quarter of 2014. The increase in gross margin compared to the second quarter of last year was due to the incremental contribution from Scepter, pricing actions, new product sales and ongoing operational cost reduction activities.

Reported income from continuing operations for the second quarter was $10.9 million or $0.35 per diluted share compared to $6.3 million or $0.19 per diluted share in the second quarter of 2014. On an adjusted basis, which excludes restructuring costs and other special items, our earnings per diluted share from continuing operations in the second quarter of 2015 were $0.32 compared to $0.22 in the second quarter of 2014. The adjusted earnings per diluted share during the second quarter were lower than previously -- lower than the reported earnings per diluted share, due to the reversal of a previously reported litigation reserve that was excluded for adjusted earnings.

Selling, general and administrative expenses for continuing operations in the second quarter of 2015 were $30.8 million compared to $31.2 million in the second quarter of 2014. Incremental expense from Scepter was more than offset by the reversal of a $3 million litigation reserve that I already mentioned and that the Company recorded as a result of a reversal of a patent infringement lawsuit where we were the plaintiff that had been previously been awarded to the Company.

Decreases in salaries, other employee-related expenses and variable selling expenses including freight also contributed to the decline in selling, general and administrative expenses during the quarter.

Our effective tax rate for continuing operations was 36.8% for the second quarter of 2015. We anticipate that the effective tax rate for continuing operations for the full-year 2015 will be approximately 32.5% due to a shift to more international earnings with the inclusion of Scepter in our results for a full year and as a result of discrete tax benefits that will likely be recognized in 2015.

Now please turn to slide 4 of the presentation. Cash flow used for continuing operations for the six months ended June 30, 2015 was $3 million compared to cash flow used for continuing operations of $6.8 million for the same period of 2014. Cash flow used for continuing operations decreased compared to the six months ended June 30, 2014, primarily as a result of increased earnings in this quarter.

Capital expenditures for continuing operations totaled $9.4 million for the six months ended June 30, 2015 compared to $7 million for the same period last year. We estimate the capital expenditures for continuing operations in 2015 will be approximately $30 million and that approximately 70% will be for new product, growth and productivity projects.

We did not purchase shares of our common stock during the second quarter and approximately 4.1 million shares were available for repurchase at June 30 under the Company's current Board authorization. We remain flexible in our terms of our capital allocation priorities in an effort to maximize long-term shareholder value as we look forward.

Now let's turn to our business segment and their performance as summarized on slides 5 and 6 of the presentation. Results are compared to the same period in 2014, and I will be referencing the adjusted pretax income information by segment as it appears on the reconciliation of non-GAAP financial measures included in the Appendix of the slide presentation and the earnings release issued earlier today.

In the material handling segment, net sales in the second quarter of 2015 increased 12.4% to $115.8 million compared to $103 million in the second quarter of 2014. Incremental sales from Scepter were partially offset by sales declines versus the second quarter of 2014 in the agricultural end industrial and markets due to weaker demand for the products that we sell into those markets.

Adjusted income before taxes in the material handling segment increased to $18.2 million for the second quarter of 2015 compared to $12.2 million in the second quarter of 2014. The increase in adjusted income before taxes was due mostly to the contribution from Scepter, including its higher margin profile, pricing actions, reductions in labor hours, overhead costs and selling and general and administrative expenses also contributed to the increase in adjusted income before taxes during the quarter.

Net sales in the distribution segment were $48.6 million in the second quarter of 2015 compared to $49.8 million in the second quarter of 2014. The slight decline in sales compared to the second quarter of last year was a result of decreased demand for some of the segment's tire repair and retread products due to soft or market conditions. Adjusted income before taxes in the distribution segment was $4.5 million in the second quarter of 2015 compared to $5.4 million in the second quarter of 2014. The lower sales volumes and the shift in product mix led to the decrease in adjusted income before taxes year over year.

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

If you would, please turn to slide 7 of the presentation. As many of you have seen by the choppy performance in many industrial companies so far this year, industrial markets from the world remain tough and inconsistent. Our end markets in particular remain fairly stressed and our exposure to the agricultural market will continue to weigh on the business for the rest of 2015, despite some signs that orders may increase late in the year.

Had we not made the strategic decisions that we made over the last 18 months to transform our business, I believe we would be at a significant competitive disadvantage today. Instead, we believe that we remain very well-positioned for 2016 and beyond, as global economies continue to recover and eventually separate. accelerate. Our mix of businesses today has significantly more growth potential and a higher margin profile than the Myers of the past and we remain excited about the long-term opportunity that we have to create value for shareholders in the future.

More specifically, in terms of our short-term outlook for our material-handling segment, while we incremental profits from the reintroduction of some legacy products, which began in the third quarter of 2015, we expect that the third-quarter results will be adversely impacted by continued weakness in our agricultural end markets, the shift in orders from the third quarter to the second quarter, and ongoing softness in our other material handing end markets due to a tough and inconsistent industrial economy around the world. We will continue to implement cost reduction initiatives to help offset these headwinds and have identified additional opportunities for legacy product reintroductions, which will take place in the first quarter of 2016.

Despite the headwinds we have outlined, we continue to expect the full year 2015 earnings to be better than 2014 as a result of our costs and pricing actions as well as the incremental profits from Scepter. Again, we believe the actions we've taken over the past 18 months to better focus the business on higher value and markets like our Scepter product line, and the actions we are taking currently to reduce costs, increase efforts on new product introductions, enhance marketing activities and invest capital for future growth will enable the Company to better deliver increased profitability and shareholder value over the long term.

Further, the solid cash flow profile of our business provides us with several levers to create shareholder value over the long term. However, our near-term capital allocation priorities remain focused on investing in capital expenditures that will drive growth and productivity, while also paying down debt to reduce leverage. Over the longer term, we will maintain our balanced approach to capital allocation.

That concludes management's presentation. But before I turn it back over to Monica, I would like to comment on the other announcement that we made this morning concerning my retirement, effective on December 31, the end of this year.

I think by making this announcement today, it gives ourselves and the Board plenty of time to make an extensive search to find the right person who is going to be able to run Myers Industries going forward and what I believe, truly believe will be able to take us to the next level.

I've made the decision because I will be 65 years old in November. I've worked 43 years, 28 at Goodyear and 15 at Myers. I've been the CEO here for 10 years. I think it's been a great run. Certainly over the last 10 years there has been a lot of challenges to this business. We've been able to take a lot of disparate businesses and bring it now into two, what I feel, high performing segments, our distribution business and our material handling business. And with the activities especially over the last 18 months, we are poised for long-term growth.

I think bringing the right person in and taking over, which I know will, I'm sure, have better ideas, will be able to take us to that level.

I also wanted to say that I'm very thankful to my colleagues and to the Board for all of the support that they have given me over the years that I've been here. I'd also like to mention the fact that we had three Board members who left: Dick Johnston, Budd Kissel, and Vince Byrd. There are a lot of years in service to this Company that they provided admirably and I would just like to give them a salute.

Finally, I would like to welcome our three new Board members. We had the opportunity in June to have a very intensive on-boarding process and orientation. I thought it went very well. All three of these Board members I'm excited to have on the Board and anxious to work with in the time that I have remaining.

All individuals, I am very confident, are coming to this Board without any preconceived ideas and, quite frankly, just want to help. And I think that's terrific.

Their experiences, their backgrounds, especially from the financial side of the business, they've already given us some thoughts and ideas before we even had really the first Board meeting, which is next week. I would like to welcome them and appreciate them coming on board.

So, from that standpoint, my reasons for retiring is after 43 years of work, and discussing this with my family, I think it's the right thing for me to do. I do have a personal reason that I won't go into, but at the end of the day, I've had a great run and I've still got until the end of the year to continue to operate this business. And I will, on a daily basis, try to make it the best business that I possibly can.

Thank you for listening to that, and that concludes our presentation. I will turn it back over to Monica for some questions.

Thanks, 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 VPs are also available to answer questions: Joel Grant from the Material Handling segment; Mike Valentino, Vice President and General Manager of Myers do Brasil, Novel Scepter and Ameri-Kart; and Alex Williamson, Vice President and General Manager of the Distribution segment. Go ahead, please.

(Operator Instructions) Chris Manuel, Wells Fargo.

Congratulations, John. Couple questions; first, the pull-ahead that was in the ag piece, if I heard you correctly, have you -- you said it was about $5 million in revenue. Is that -- Gregg, do you have a rough guess? Is that somewhere between $0.02 to $0.04 or so, maybe, that got shifted between 2Q to 3Q, does that sound about right?

Yes, you are in the right range. Obviously we don't want to disclose the specifics as to the margin profile given competitors tend to listen to our call and read our transcripts, but you are in the ballpark.

Okay, that's helpful. And then, some of the new products in different elements that are -- you are relaunching, some of the legacy products, do you have a rough sense of what you are targeting as you look through the balance of this year and next year on an annual basis, what the revenue profile level look like? Is that a $10 million, $20 million, $30 million sort of opportunity you are targeting? Is it something smaller than that, bigger than that? How would you couch that, number one?

And then number two, Joel, is that a -- margins that you are targeting there, are those kind of at the mature handling average? Or are those potentially a bit below? How would you characterize that?

I would characterize the items that are coming out, the dollar figures that you said -- cited in terms of the revenue profile, probably on the high side as they will just be launched and be taken off and ramp up on a trajectory path. As far as the margins, they are not -- in our business, in the wide range of things that we do, all margins are not created equal.

So these are probably not what some of the niche agricultural that are missing, but they will, as John mentioned, help cover some of the fixed costs and generate additional revenue that wouldn't have otherwise.

Okay, that's helpful. One question for distribution piece, Mike; where are you at with the rollout of the vending machine products? Is that part of what was contributing to maybe some of the revenue that didn't have as much margin as selling those or putting those in place? Or how should we think about that business? I think your objective there has been kind of to target a roughly 10% EBIT margin and we've had lower gas prices, we've had more consumer miles driven, things of that nature. Should we begin to see some acceleration in that business?

This is Alex Williamson. Our expectation for the year is that, despite the fact that year-to-date replacement tire sales are down, miles driven are fairly flat. We would expect to end the year at a growth rate in the low single digits.

In terms of the vending machine program, without getting into specifics, what I will say is that we've really seen some very nice growth at the accounts where we've placed those machines, very significant growth, I will say, and very profitable growth. And that is in a very challenging environment, so we are very bullish on that program going forward.

Okay, that's helpful. And I have a couple other questions; I'm just going to ask one more and I will jump back into queue. But John, is it your intention that post December when you retire do you intend to stay on the Board or kind of make a clean break?

Well, I am an elected Board member until next April. I guess at this point I would probably stay on until April. Anything that I can do to help the new person who is going to become President and CEO, obviously, I want to do. I've got a lot of time and effort invested in this Company.

At this point, I actually haven't given that a whole lot of thought but I am a Board member until next April.

Okay, thank you. I will jump back into queue.

Adam Josephson, KeyBanc Capital Markets.

John, congratulations on your retirement. I have really enjoyed working with you.

Thank you, appreciate it. I'm not done yet.

(laughter) John, just one on the succession question. I don't know precisely when you can say along these lines, but do you have any sense for what qualities the Board is looking for in terms of your successor? Capital allocation, operationally, otherwise?

I think all of those, Adam, would be extremely important. And obviously, somebody with experience, perhaps significant leadership experience at increasing levels of responsibility. Obviously the international search firm DHR is who we are using. They are very experienced at that, and they are putting together a complete analysis, I guess, as to the requirements and the specifications for the job.

Got it. Thanks, John. On Scepter, can you just put into perspective what happened with that business since you acquired it last third quarter? It has been quite good the last couple quarters. It wasn't so good in the third quarter of last year.

Obviously I assume resin has been a nice benefit the last quarters, but can you just walk us through the progression of that business from the time you acquired it last fall until now and precisely what has changed as to the positive?

Adam, this is Gregg. As I think it's well known, the business stumbled out of the gates in the third quarter of last year, our first quarter of ownership. Fourth quarter was in line with our expectations of that business. As we spoke in the first quarter of this year, their performance was better than expected and that improvement was enough to offset the miss, if you will, that happened in the third quarter of last year. Part of that was driven, just some additional sales volume with the harsh winter in the Northeast that we talked about last quarter.

And then, here in the second quarter, they continued to perform well. For the 12 months that we've owned them, they are ahead of our expectations so we are very pleased with them and the performance that we've gotten out of them. We continue to work on the integration. We've seen the benefits of the synergies that we previously talked about and we -- just like we talked about in the release and in our prepared remarks, we've been very conscious with all of our businesses, including Scepter, on cost controls and pricing actions throughout the first half of this year, and certainly that helped us as well.

Their sales for the quarter were basically in line with our acquisition model. Certainly we saw some headwind on FX and that impacted us somewhat. But, because the costs are primarily denominated in local currency, that didn't have an impact on the profitability. But very pleased with the acquisition, very bullish on it moving forward and nicely accretive so far in the 12 months we've owned them, and expect them to be very accretive going forward.

I will let Mike maybe embellish as to how the business from his perspective is going, given that he leads that organization.

Thanks, Gregg. Hi, Adam. As Gregg mentioned, we bought a very strong business. We are pleased with the results so far.

We are seeing some synergies starting to materialize on the cross-selling side that we will see here in the second half of 2015, as we launch the marine aftermarket program that we are in the process of doing right now, and we are seeing very encouraging results and acceptance by the market. So, we expect that new product push to continue from the Scepter team. They've done a great job there. I was up there earlier this week meeting with the group and expect that to continue as we head into the second half of 2015 and into 2016.

Thanks, Mike, for that. And just one follow-on for Scepter or Mike or Gregg, you talk about whatever resin benefit you are able to realize by holding prices in a falling resin cost environment and what your pass-through mechanisms, such as they are, are in that business?

Adam, this is Gregg again. Given that that is a piece of our total material handling segment, and the competitive nature, obviously we don't want to get that kind of specificity. But I will say for our entire businesses, we clearly -- the pricing actions were a key component for us. What I will say with respect to Scepter, unlike some of our business within the rest of the material handling, very little there is on an index and so we price competitively. But more importantly, we price on a value sell and look at what the value of the product is that we are selling and what the price should be on that product.

Thanks, Gregg. And one on gross margins, obviously significant gross margin expansion year on year, 300 bps.

Can you give us a rough sense how much of that is the addition of Scepter how much is -- I think you talked about $4.5 million of cost savings compared to a year ago and then you talked about pricing actions. Can you give us some sense what the source of that 300 bps of improvement was?

Yes, this is Gregg again, Adam. Again, we are not going to get into that level of specificity. We saw benefits as we said before on Scepter, they are margins are better than the rest of the based business, so it certainly helped us. You can't discount the $4.5 million of savings that we mentioned through the pricing actions as well as cost reductions.

So that $4.5 million, obviously part of that was Scepter. But a lot of it was not Scepter too, so the key is, I think, when you look at our entire business, we are managing our costs very well, and we are managing price very well.

Thanks Gregg, and just one last one and I will turn it over. Has your full-year profit outlook increased on account of your second-quarter performance? And if so, what specifically was better than your expectation?

Yes, this is Gregg again. I would say no, we don't necessarily see our full-year increasing as a result of the performance in the second quarter. Obviously we did see the impact, some of it coming out of third quarter into second quarter on the ag side but we don't necessarily see our full year getting better than where we were.

We -- the headwinds that we've outlined continue to be there, primarily in the material handling segment that will continue to be a headwind. But we do expect full year to be better than last year.

Thanks a lot, Gregg, appreciate it.

[Brian Bonheimer], Gabelli.

John, I would just like to echo best wishes and congratulations on your retirement and wish you well in the future.

Thank you, Brian. Appreciate it.

Just one question on the distribution business. It kind of surprises me that there were some headwinds, given the miles driven activity. We are about 3 trillion miles now again in the US.

Where do you see some of the end of market inventory before we start to see that business pick back up on the tire side?

Like I said earlier, this has been a very challenging, from our perspective, a very challenging first half of the year when we look at what we see in the end use market as well as the miles driven from our perspective being in essentially a flat situation.

Beyond that, much of our activity is very much driven by the choppy economic environment. And our customers, our shops see that. So, when consumer activity and commercial activity is uncertain, and challenging, people are holding back on their spend.

Beyond that, there are some specific regions in the country that have been facing from challenging times and that has also been a bit of a headwind for us. You mentioned the inventory. The tire inventory has been inflated to some degree by the influx of imports, and particularly on the commercial side that hurts our retread segment. When commercial operators moved to imported tires as opposed to retreading existing tires, that hurts our sales in that segment, so that has also been a challenge for us.

All right, thank you very much.

Christopher Butler, Sidoti & Company.

Just staying on the tires for a second. Starting to hear some better news from tire demand out of Europe. Any sense that maybe that finds its way over here as well? Or are those two completely distinct markets?

This is Alex Williamson again. We would view those as two completely distinct markets. And again, our outlook for the year would be growth in the low single digits for the market as a whole.

And shifting gears to material handling, if you give us an idea of when or if you are planning on shifting Scepter to the index-based pricing that was so successful for you a few years ago with your legacy material handling business?

Chris, this is Mike. At Scepter, I think Gregg mentioned it earlier, our focus is really on value-added products where we can introduce innovative solutions to the marketplace and for our customers. That is a path that Scepter brought in with the acquisition and we are going to look to continue that in a number of our other businesses as well.

So, specific to your question, that is how I would say. We are going to continue on a value-added, innovative new product approach in a number of our businesses going forward.

And staying with materials handling, any increase in foreign competition because of the strong dollar?

Well, I mean, exchange has certainly had an impact on our business. Gregg mentioned earlier on the Brazil side of things that despite the exchange impact, our business in Brazil has kind of held its own in local currency despite extremely challenging market conditions throughout Brazil with the economy and the political landscape.

So, again, as we look to introduce more innovative products that are specifically geared toward markets and customers, I am optimistic about where we are taking these businesses.

Sounds like the difficulty would be Brazil rather than anybody, say, from Europe coming to the United States and making things more competitive here.

Chris, this is Joel Grant. I would also add to that, while we see little dribs and drabs of introductions of things, we don't have a lot of offshore competition at this time. It's just a matter of shipping and the nature of our product, even from Mexico into the US, not as much activity as you might have expected.

I appreciate your time.

Gary Farber, CL King.

Just can you also update us on your acquisition pipeline and just generally your thoughts on what prices look like in the market right now?

This is John. We continue to get a lot of things that come across the desk, and I think that's just been the nature of Myers over the years. But we have really doubled down on our screens that we use, both financially and operationally, in looking at acquisitions. And frankly, nothing has been passing those screens.

Obviously, if something like a Scepter would come along, that might be something to at least take a look at.

Right now, we're kind of really focused on debt. We are at about [2.67] debt level. We like to be below [2], between [1.5 and 2]. So we are really trying to drive cash to be able to do that. So it's going to be a much tougher screen at this point for acquisitions. Down the road, I think certainly if the right opportunity comes along and it passes all the screens, and that is something that the Board would be more than happy to take a look at, that's kind of where we're at right now.

And do you have a bias towards increasing a particular market or something that is sort of a different product that sort of fits in (multiple speakers) things you are looking at?

Yes. Good question. We have two very strong segments now. Like I said, we have taken a bunch of disparate businesses and really boiled it down to where we have two very good operating businesses with growth potential.

So, it probably doesn't matter from the standpoint of picking something specifically. If it makes sense, again, through our screens, and it makes strategic sense and the Board is good with that, then I would say we would certainly take a look at it. But nothing specific.

This is Gregg. I would further add specifically on the material handling side, as we've talked in the past, the key for us is an engineered solution that we would be looking for. But as to whether that would enhance an existing product portfolio or geographic expansion, all of those would be on the table. But the multiples for so many businesses right now are -- quite honestly are too high.

They're out of control.

What people think their businesses are worth versus what cash says they're worth is a completely different answer. There is a disparity there, in our opinion.

Would you say over the last six months since -- I don't know if it's a relevant timeframe, that the prices have sort of increased or they sort of steadied out at a high level?

The plastic side of the business, they've increased, the multiples have increased. I think there is still a lot of money out there. There's a lot of private equity money and some of the deals, you've got to look at and shake your head and wonder where do these come from. I think on the distribution side, the multiples are fairly high. And certainly again, as Gregg says, it kind of precludes us from -- we certainly don't want to overpay for anything and so that kind of keeps up to where these deals aren't meeting our screens.

Yes, the right deals, as John talked on -- this is Gregg again -- great deal would really be a deal like we did with Scepter, something that is going to be very nicely accretive and is a good business that we pay the right price for.

Okay. Thank you.

Chris Manuel, Wells Fargo.

First, I apologize. Mike, Alex, I confused your segments earlier. But Mike, I do actually have a couple questions for you regarding Scepter.

So, where are you at presently? So you -- you are introducing some new products. I know that I have begun to see a few of your products show up in large club stores, things of that nature. But in almost a full year under your belt with the business, are you --? Absent currency and while material adjustment, has the business continue to grow along the path you've anticipated, number one? Where are you with some new product introductions and looking at some new markets, new geographies and things, etc.?

Sure, Chris. So I'm about six months into it and have been working closely with the Scepter team almost daily. We've got a great team up there. I think on a year-to-date basis, there has been a pretty minimal impact in the results that you've seen on the new product side as we get into third and fourth quarter year, second half of the year, you're going to see that activity pick up with some very nice niche products that address a lot of issues that currently exists in the marketplace. So I would call that a very -- a lot of innovative solutions coming.

Relative to new markets, the opportunity that we have that I talked about earlier in one of the other questions around the marine aftermarket segment, we are seeing an extremely positive reception from the marketplace with those products that are being launched right now.

So, we are continuing to look at geographies and markets where we can win and be successful, again, not with me too products at lower margin, but with innovative solutions where we can drive a competitive advantage and solution to the market that allow us to command higher margins.

I think there may have been some geographic opportunity as well with taking a few of the spare lines from out in Oklahoma and redeploying them in some other places around the globe. Is that still something you are evaluating?

We have taken a look at that. And the challenge that prevents there is there isn't the regulation and a lot of those markets that will allow us to command the margin that we think the product deserves. And as I said earlier, we are going to stay away from me too commodity-driven products. So, despite that, I think in some of the other segment we don't talk a lot about specifically maybe military, there are opportunities where we have seen significant places where we know we can grow the business. And now, we are looking at the resources we need to be successful there and that will be part of our go forward plans.

Okay. And then Gregg, the $4.5 million that you referenced between price, mix, productivity and cost reductions, how should we think about that as we roll forward the next two, three, four quarters? Do we see a similar type amount? So maybe, if it's feasible to kind of parse it between some of the pieces, likely you will continuously see productivity in terms of your cost reduction actions if there is temporary price things here that may not translate through. But how would we think about that number might compare to the next two or three, or four quarters as we look forward?

Chris, this is Gregg. I would say that a good chunk of it obviously came out of the cost and pricing actions. Clearly with, as we've talked about, resin and the issues there, with our indexing in some of our businesses, that will limit the benefit that we get there going forward. So I don't think we will see near as much in the next couple of quarters.

We will continue to work hard on the rest of our costs, as we always do, and those cost savings will continue to move toward. But, clearly, we won't -- we don't expect to see the level $4.6 million per quarter that we saw in this quarter.

Okay. So if I were to just ballpark something, I'm guessing we might be a third to a half of it on a quarterly basis as we continue to move forward. Would that be a fair assessment?

Yes, I think that's fair.

Okay, and then last question is when we look at cash flow, are you still kind of tracking towards --I guess, two elements for cash flow. First, let me ask a CapEx question.

So you had talked $25 million to $30 million in the past and are now kind of suggesting towards the high end. What are maybe a few of the new projects or new areas that you are looking at that have kind of moved that towards the higher end of the range?

Are there any specific categories or cost reduction efforts were things that you're targeting here, number one? And then number two, are you still feeling that a free cash flow number, up cash or less CapEx can still be in the $30 million to $35 million range?

This is John, Chris. One of the major projects that is taking some of that additional CapEx is a redo of our manufacturing capabilities around our Akron Mills business. We are moving equipment from one facility to another facility. Taking a facility and making it 24/7, it's been a high-performing facility for a long time for us, drive high margins through those products.

And so that project includes some new equipment which will increase efficiencies as well as reduce energy costs dramatically. All of these are major savings to the bottom line. And so that is probably the major expenditure this year in CapEx.

With respect to the second part of the question, I will let Gregg --.

Thanks John, this is Gregg. I think with the higher CapEx that we have talked to now at the $30 million range, clearly that will have an impact on our free cash flow. So I think we're going to be down close to the $30 million range than the high end of the $35 million.

But at the same time, cash is very important to us, as we've talked about previously and we will continue to work the cash very hard to try and outperform.

Okay, thank you, guys. Good luck in the quarter.

Adam Josephson.

Mike or Gregg, one more on Scepter and material handling more broadly. So you talked about your value pricing approach in Scepter such that your pricing in that business is not tied to an index. In some of your other businesses and material handling, obviously your pricing is tied to an index.

So, can you just talk about the distinction? Why is your pricing index in some of your material handling businesses and not others? Presumably you employ a value pricing approach in all of them.

Adam, this is Gregg. You are absolutely right. We do employ value pricing approach to all of them. I think it really comes down to whether it's index or not comes down to the specific customer. Certain customers are more receptive of that.

I think when you get into Scepter's customers, the fact that they are big-box and how they operate, they certainly like to not move their prices around much from a retail perspective throughout the year. When they do it, your retailers tend to do it more, relative to specific competition that they're seeing in regions. So they are less inclined to go to an index than I think your seed companies and the other food and ag companies out there that it's -- they understand it.

Now that being said, we will continue to work with all of our customers on whether indexing makes sense to them. But the key is, you're absolutely right, is we clearly look for value sale on all of our products across all of our market and customers.

Thanks, because obviously the Company has made an effort over the past few years to reduce its sensitivity to fluctuations in resin price. And with Scepter, you have to set some extent increased your sensitivity to that, right, unless you think that if resin were to spike, there wouldn't be any drag for you as a result?

No, Adam; this is Mike. I think at Scepter we haven't done that. I think it's a good example of where, because we've got a competitive position with products that customers want, where we are playing in certain niches, specifically in the military segment and with some of the new products that we are in the process of introducing, where we've got some intellectual property protection, that really gives us the levers to be able to do that.

Got it, got it, thanks, Mike. One just in terms of the ag business, you commented that order activity may increase in the second half. You are seeing signs of that. What do you attribute that to? And can you give us some sense as to how significant that pick-up could be?

This is Joel Grant again. As far as the magnitude of it, as I said earlier, I think I said earlier we are seeing signs of commodity prices moving in the right direction, ourselves and others. I saw John Deere on their site talking about the prices returning to historical average levels.

So, and the fact that we had some folks that moved product ahead in the year, I think that's all a good sign that things will begin moving in the right direction. It's a lot of moving pieces in it.

It depends a little bit on how these companies decide to spend CapEx and expense money, and they are all still on high alert in terms of what they are going to spend. So there are lot of moving parts. Some of the preference by the end users is going to play into it as well and we think that helps us.

But we will have to wait and see, but there are a number of moving parts and we are encouraged by several of the factors I just mentioned.

Thanks. Just one follow-up to that, could you characterized of what you think your order activity in the business this year will be compared to last year or the last three or five years, just to give us some perspective?

On a percentage basis, we are probably looking by year end to be off in the low 30% in that specific market category.

In seed boxes do you mean?

In ag in general.

Right, okay. So off 30% from last year.

Correct.

Okay, okay. Even with that pick-up, okay. And then just one on the food processing side, Joel. You've talked about you have a large customer and there's been in the food processing business and there was a slowdown in orders from that customer. Can you talk about the situation there?

Well, the situation with that particular customer hasn't changed and I think we mentioned last time we didn't really think it would change through the rest of 2015. But I can say in the second quarter, we had very good activity out of the other folks that are in the same industry and so we had a very good second quarter.

Paste, tomato paste in California, for example, continues to run through September. They are having a very good crop. Water does not seem to be impacting the situation.

So, while the activity that I just described didn't completely offset that activity in Q1, as I say, we still have some time left in a very active market in California. And so we are encouraged.

Thanks a lot, Joel, appreciate it.

Ms. Vinay, there are no further questions at this time. Would you like to make any closing remarks?

Yes, thank you. We thank all of you for your interest in Myers Industries and your time and participation today. As a reminder, a transcript of the call will be available on our website within approximately 24 hours. A replay will also be available immediately 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.