Myers Industries Inc (MYE) 2017 Q4 法說會逐字稿

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Myers Industries Q4 and Full Year 2017 Earnings Conference Call. (Operator Instructions)

Thank you. Monica Vinay, Vice President of Investor Relations and Treasurer, you may begin your conference.

Thank you. Good morning. Welcome to the Myers Industries Fourth Quarter and Full Year 2017 Earnings Call. Joining me today are Dave Banyard, President and Chief Executive Officer; Matteo Anversa, Executive Vice President, Chief Financial Officer and Corporate Secretary; and Kevin Brackman, Chief Accounting Officer.

Earlier this morning, we issued a news release outlining the financial results for the fourth quarter and full year of 2017. If you've not 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 the transcript of the call shortly after this event.

Before I turn the call over to management for remarks, I would like to remind you that we may make some forward-looking statements during the course of this call. These comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings and may be found in the company's 10-K filing.

I'm now pleased to turn the call over to Dave Banyard.

Thanks, Monica, and good morning, everyone. Thank you for joining us. We're going to start on Slide 4 with a review of the year. We accomplished a lot in 2017, and we're starting to see the results of the work that we did showing up in our numbers in Q4.

Starting on the left, we generated $43 million in free cash flow in the year, an increase of 102%. We're very proud of that. As we've said before, we feel the cash is the best measure of performance, and we delivered strong cash flow in 2017. And we got there by executing on our strategy. We had strong commercial execution in our -- in 3 of our key niche markets, double-digit year-over-year growth in the consumer markets and in the food and beverage markets, both due to increased demand as well as due to the good work from our teams there to take share.

We also had high single-digit growth year-over-year on our vehicle markets. That's primarily driven by the work that our team has done in the RV segment. They did a very nice job of delivering the customers there, and obviously, that market is also very strong at the moment.

Operationally, we accomplished a lot with a lot of different improvements, moving further towards our asset-light business model. We closed 2 manufacturing facilities and relocated a lot of our fuel can production. We did all that on time and on budget and with minimal or no impact to the customers. And that's a real testament to the work that the team did there, particularly given that in the fourth quarter, we did see a large increase in demand. And so we were moving at a time of ramping up production. So it's a very challenging event for the team and everyone did a very nice job. And I'll talk a little bit more about that in a minute.

Additionally, due to a lot of this change, we're able to reduce working capital by $10 million within the year and that helped contribute greatly to our cash flow performance. And what I want to highlight here is that these changes in reductions in working capital are due to fundamental structural changes and good process improvement that we're doing within the business. So as we move to an asset-light business model, we are moving certain operations outside that we don't need to do. And by doing that, we are lowering inventory because the inventory is, therefore, carried at suppliers, and also increasing payables as we do that. So -- and in addition to that, we've also done a good job of the basics of blocking and tackling of working capital management, such as negotiating better terms with our suppliers and our customers. So overall, nice improvements there in working capital, and we expect that to continue moving forward.

As we highlighted in our earlier press release, we divested our Brazil operations in fourth quarter. These were nonstrategic. We've been working on this for a while, and we're happy with the outcome there.

The end result of the work that we did, we were able to reduce our debt by almost $40 million in the year and reduced our net debt to adjusted EBITDA ratio to 2.5. And what that does is it sets us up well to continue with our strategy of looking at M&A as a growth trajectory for us. And we established a nice acquisition pipeline throughout the year, and we're very happy with where we sit there.

Now with all that work done, we still have our challenges. There's still a lot of room for improvement in some areas, and I'll go through that now. Particularly, in the Distribution, we -- Distribution Segment of our business, we showed some good progress through the year, but we're not happy with where we are, and we're not satisfied that we've reached the kind of growth that we expect out of that business.

Overall for the year, the sales declined 6%. Much of that decline was in the first half. So we did see improvement in the second half, which we're happy with. A lot of that improvement came from the tools that we put in place for our sales team, but we're still seeing a pretty good decline in some of our territories. And we've isolated that to certain areas, about 5 to 6 territories that we feel we're losing in. And we're focused on that moving into 2018 as to how we can improve there.

We also suffered a bit in profitability in the Distribution Segment, a lot of that's from the investments we were making in SG&A. We think these are good investments and they're yielding results in these territories where we're strong, we're seeing in some cases double-digit sales growth and even better profitability growth in those territories. It's just what not widespread enough across the entire group that we're seeing it in the bottom line. So we're satisfied with those investments. However, it's not showing up on the overall bottom line yet.

We've got new leadership in place there, and we're looking at a number of different things. We still feel that in the territories where we're underperforming, our turnover is too high. So we don't have continuity of sales coverage. We do still have some process challenges, where we're causing probably more work in confusion than we need to ourselves. And then, we're looking at a variety of different ways as we look at these territories where we're underperforming and losing that we can go to market differently and address that.

Moving over to Material Handling. We're not yet realizing, particularly in the fourth quarter, the full restructuring benefits. Primary reason for that is that as we were moving these factories, we were -- we saw a ramp-up in demand, which is a good thing. It's a good problem to have, but we wanted to focus our attention on making sure that we serve the customers well. And so in order to do that, we incurred higher costs than we would normally want to have. So -- and the reason for that is we weren't able to put the lean processes in place as we were reorganizing these factories. So we started on that later in the year than we expected, late December, early part of the first quarter. We're continuing to work on that. We're seeing a lot of improvement in a rapid fashion in a number of these locations, which is great. But it's -- we're not seeing yet the -- quite the full benefit of the restructuring as we go. We expect to see that continue to improve as we put these lean processes in place through the first quarter and then get the full benefit starting in the second quarter of this year.

In addition to that, we had raw material increase throughout the fourth quarter. Our processes are set up to cover the costs. And what ends up happening there is you get margin compression. So we did cover the costs in the fourth quarter of the increases, but not the margin. What we did in the late part of the fourth quarter was to evaluate our pricing processes for both periodicity. So if you think about it, some of our processes only change once a quarter, sometimes it's only once a year. So we're looking at that as a method for improvement on this. And also looking at the indexes that we have. Some of our business is indexed, and those mechanisms didn't quite work the way we want to. So again, we're happy with the fact that we were able to cover our costs. And obviously, the way these things work, we -- in a deflationary environment, we get the benefit for a period of time and that's where you make it up. What we're trying to do is look at the periodicity and make sure we can make that change happen quicker. And so we're evaluating all of our pricing in that regard as we go here into the first quarter. And we're seeing some benefit of that, but it's going to take a few more months until we get through that.

So those are the achievements and challenges for the year. I'm going to turn it over now to Matteo for the specifics of the quarter.

Okay. Thanks, Dave, and good morning, everyone. I will review today the -- our performance in the fourth quarter and total year as well as the cash flow for the year.

So if we turn to Slide 5, I will walk you through an overview of our fourth quarter 2017 performance on a GAAP basis. And as always, the numbers in the presentation reflect continuing operations. So as you can see on the chart at the top left side of the page, net sales increased 13.6% to $140.1 million compared to $123.3 million of the fourth quarter of last year. Excluding the impact of foreign exchange, the increase in sales year-over-year was 13%. This increase was primarily the result of higher sales in key niche markets within Material Handling, partially offset by declines in the industrial end market and Distribution Segment.

Gross profit increased $3 million year-over-year due to higher sales volume and price, partially offset by unfavorable mix in operating inefficiencies. The benefits from the pricing actions, as Dave mentioned before, mostly offset the raw material cost during the quarter.

SG&A expenses were flat year-over-year. And as a result, GAAP diluted earnings per share were $0.06 compared to a loss of $0.03 in the fourth quarter of last year.

If we turn to Slide 6, I will give you an overview of the key variances on a adjusted basis. So if we start at the top right side of the page, adjusted gross profit was $38.7 million in the quarter compared to $35.3 million of last year, corresponding to an increase of $3.4 million. Similar to the increase in GAAP gross profit, the increase compared to last year was due to higher sales volumes and price, partially offset by unfavorable mix and operating inefficiencies related to the factory footprint realignment in Material Handling.

Adjusted SG&A was flat compared to last year. Lower health care costs and depreciation and amortization expenses were offset by higher variable selling expenses and recruiting fees.

As a result, adjusted operating income increased by $3.2 million to $5.6 million, adjusted diluted earnings per share were $0.09 compared to $0.01 in the fourth quarter of last year.

In Q4, we also had a positive impact from the new tax legislation of about $1.2 million or $0.04 a share and an expense of $1.9 million from debt extinguishment, both of which were excluded from the adjusted EPS.

If we turn to Slide 7, I will give you an overview of the performance by the segments. So if we start from the left side of the page on Material Handling, sales increased by 26%. The increase in sales was driven primarily by the double-digit growth in our food and beverage market due to improved demand in agriculture and share gains in food processing.

Our consumer end market was also up double digits due to higher demand for fuel containers, which was partially driven by the 2017 extremely active hurricane season.

Sales growth, combined with pricing actions in our Ameri-Kart business, which serves the RV and marine markets, also contributed to the increase in sales year-over-year.

Conversely, softer demand, combined with our current focus on 80/20 sales initiative, which, as we mentioned in the past, includes the elimination of low-margin products, resulted in a decline year-over-year in sales in our industrial end market.

Adjusted operating income in the segment increased $4 million to $8.8 million, which was 83% higher than last year's adjusted operating income of $4.8 million. The increase was primarily the result of higher sales volume, partially offset by unfavorable mix and operating inefficiencies.

Pricing actions more than offset the increased raw material cost during the quarter and the restructuring savings were offset by higher outsourced premiums resulting from the increased demand that occurred during the final stages of our footprint realignment.

Turning to our Distribution on the right side of the page. Net sales declined by 9%. The decrease in net sales was primarily the result of the deliberate exit of a low-margin product line in our Patch Rubber business, which contributed $2.7 million of the decline.

Net sales in Myers Tire Supply were down about 3% year-over-year due to open territories and decreased demand in the segment's international operation. This decline was partially offset by higher pricing, resulting from the new pricing structure that we put into place at the beginning of the third quarter of 2017.

Adjusted operating income in the segment declined by $1.7 million compared to last year. Positive price and favorable sales mix only partially offset the negative impact from the lower sales volume.

Higher compensation costs, driven by investments in headcount, also contributed to the decline in the operating income year-over-year.

If we turn to Slide 8, I will give you an overview of the total year 2017 performance on a GAAP basis. And as you can see on the chart on the top left side of the page, net sales increased 2.4% to $547 million. Excluding the impact of foreign exchange, the increase in sales year-over-year was 2.2%. And similar to what we said for the fourth quarter, the increase was primarily the result of higher sales in key niche markets within Material Handling, partially offset by declines in the industrial end market and Distribution Segment.

Gross profit declined $4.4 million year-over-year due to restructuring expenses of $7.4 million. SG&A expenses increased $2.9 million compared to last year, partially due to $1 million in restructuring-related expenses. And as a result, adjusted diluted earnings per share were $0.35 compared to $0.38 in 2016.

If we turn to Slide 9, I'll give you an overview of the full year performance on a adjusted basis. And if we look at the top right side of the page, adjusted gross profit was $165 million in 2017 compared to $161.9 million of last year corresponding to an increase of $3 million. Higher sales volume and favorable sales mix and lower depreciation expenses were partially offset by operating inefficiencies, which resulted from our footprint realignment. Also benefits from pricing actions that we took throughout the year partially offset the increase in raw material costs.

Adjusted SG&A increased $2.9 million. Lower health care cost and depreciation and amortization expenses were offset by higher incentive compensation costs and legal and professional fees.

As a result, adjusted operating income was relatively flat year-over-year, and adjusted diluted earnings per share were $0.51 compared to $0.48 in 2016.

As I mentioned during the fourth quarter discussion, the adjusted EPS excludes the positive impact of the new tax legislation and the [expense over] the debt extinguishment.

If you go to Slide 10, I'll give you an overview of the performance for the full year of the business segments. So net sales in Material Handling, on the left side of the page, increased 7.5%. And as Dave highlighted at the beginning of the presentation, the increase in sales was driven primarily by the double-digit growth in our food and beverage and consumer end markets and high single-digit growth in our vehicle end market. The growth in those key niche markets was partially offset by a decline in the industrial that was partially due, as I mentioned earlier, to the elimination of the low-margin products as part of our 80/20 focus.

Adjusted operating income in the segment improved $3.3 million, corresponding to an increase of 8%. Higher sales volume was partially offset by unfavorable mix, operating inefficiencies and higher incentive compensation costs. Pricing actions partially offset the increase in raw material costs during the year.

Turning to the right side of the page, moving to Distribution. Net sales declined by 8.3%. The decrease in net sales was primarily the result of the deliberate exit of a low-margin product line in Patch Rubber and a decline in our Myers Tire Supply business of approximately 6%.

Mixed market conditions at the beginning of the year and territory gaps throughout the year led to a decline in sales volumes that were partially offset by pricing. We are pleased to see that the new pricing structure that we put in place during the year, is producing the improvements that we were expecting.

Adjusted operating income in the segment declined by $3.8 million compared to last year. Positive price and favorable sales mix only partially offset the negative impact from the lower sales volumes. As we said in the fourth quarter, higher compensation costs, driven by investments in headcount also contributed to the decline in operating income year-over-year.

If we turn to Slide 11, I will give you an overview of the balance sheet and the cash flow. So as Dave mentioned earlier, we generated strong free cash flow of $43.3 million for the full year of 2017, more than doubling our cash generation of 2016. Thanks to this performance, we reduced our debt by $38.5 million and lowered our net to adjusted EBITDA ratio to 2.5 despite of the lower EBITDA compared to 2016.

The ongoing focus on reducing our working capital contributed to the stronger cash flow. Working capital, as a percent of sales in the quarter, was 5%, which was below the prior 3 quarters and nicely below our target of 9%.

In the fourth quarter, we also completed the sale of one of our facilities in Canada, which became vacant as part of the reduction of our factoring footprint in Material Handling. So this sale in addition to the other disposition that we did earlier in the year generated about $9 million of proceeds, which helped us further reduce our debt.

Capital expenditures decreased by $6.7 million for the full year. Better capacity management during the year led to lower capital spending in 2017. However, we expect CapEx to be higher in 2018 as we invest more in growth initiatives.

With that, I will turn the call back to Dave, who will review our 2018 outlook.

Thanks, Matteo. If you could change to Slide 12, please. Looking forward into 2018, we have good momentum coming out of the fourth quarter of 2017 to start the year. We've a solid backlog in a number of areas. And so with that, we're expecting overall low to mid-single-digit growth throughout the year. And what I'll do here is go through each of the macro markets that we serve. And as a reminder, this is our view on the right side of where we think we'll be participating, not what we think the underlying market growth will be.

So starting at the top with the consumer market. We think our performance there will be flat this year. Number of different things are at play here. Primarily, it's -- we're flat due to a tough year-over-year comparison. As you'll remember, lot of hurricane activity in 2017. So we shipped quite a bit of products in the second half higher than our normal volume in the second half for that business. And we're not expecting that to happen again -- hopefully, it doesn't happen again. And so we have a tough year-over-year comp in the second half. It also does -- has a little bit of a dynamic of a late setup. Couple of different factors that are coming into play here, but we are seeing a late setup through our channel there. They're working inventory off. So we do have a good point-of-sale data that shows that the market is behaving normally. However, our channels are getting rid of inventory that they had built up through this second half. And so we've a little slower start to the year, which we expected, and then we'll have a tough comp in the second half. So that's why we're expecting it to be flat. So essentially, we're going to make up ground with some share gain, which we're very comfortable with. And a big part of that is we do have a new product coming out, that's part of also why this setup is a little late is that customers are waiting for that and that's going to come out later in the spring. So couple of different factors at play there causing the consumer market participation to be flat, although we think the underlying consumer situation at the moment is good.

Moving down to food and beverage. We're expecting high single-digit growth there. We had a very solid agriculture season this winter and that's really -- we're in the middle of that as we speak. Couple of different factors at play there. One is that the farm market itself has reached the bottom and had a little bit of growth in 2017. So I wouldn't call it a V-shape recovery there, but the market itself has stabilized. And also our customer base has stabilized. There was a lot of M&A activity amongst those customers, that's stabilized. And so what we've seen through the fall season and then into the spring here is a little bit of pent-up demand. So we've had a very strong Ag business so far this winter. We'll see that probably be a little bit less next year. And so we still think we're going to have high single-digit growth, but, again, the second half is not quite as strong I think year-over-year or it's at least unclear at the moment as we look forward. But still we're going to have a very solid year in that business due to the strong winter that we've had.

Moving down into vehicle. We're expecting again high single-digit growth here. I think a very similar market dynamic to what we saw in 2017. Somewhat muted auto manufacturing, but very strong RV and that pace continues. However, we are very cognizant of the fact that, that market is -- has been strong for several years in a row now. And we're anticipating that probably by the end of this year that market will slow down. And it is a cyclical market. So we're keeping our eyes open for any kind of turn there. But consumer sentiments remain strong. The RV market has done a great job of marketing themselves and their growth pace continues. And so it's a nice story. And our team there has done a very nice job of being able to improve their capacity continually to deal with this increased demand from their customers. And they've really done a nice job of helping these customers out who are seeing record demand in their own factories helping them manage that. And that's really built a nice relationship between us and the customers there, where we've gained additional business because of it. So we like where we see 2018 for the -- for that market, but anticipating that at some point next year that slows down a bit.

The industrial market, which is probably our least niche. If you think of it, it's a bit more general of a market, we're expecting flat. And primarily that's self-induced. I think the industrial market is moving along at a steady pace at the moment, which helps us. And it allows us to really restructure our focus there to make sure that we're focusing with our best products and our best customers to make that business better than it's been in the past. So with that, we're going to have a flat year, but I think it's -- that's still is going to improve in profitability standpoint significantly. And so that's where we're focusing our attention.

And finally, in the auto aftermarket. As I mentioned earlier, we have a portion of the -- of our territories that are doing very well here. And so that gives us confidence in the investments that we've made in this business and the tools that we put in place. We think that we'll be able to grow that business in the full year at low single digits, probably going to be more of a second half story on that. But really, our focus right now is figuring out how we get back on a growth trajectory in really 5 or 6 underperforming territories where we've lost more significantly than others. And again, as I mentioned earlier, it's a combination of personnel turnover. Some of it is process-related, but a lot of it is personnel and how we're going to market. And we're looking at a variety of different ways of changing the game there to improve on that.

So put all that together, we're forecasting low to mid-single-digit sales growth in 2018.

If we switch to Slide 13, I'll just go through a couple of key assumptions here, the net sales I just highlighted. CapEx, $10 million to $12 million. And once again, I wanted to highlight on here, we've got a number of questions on capital expenditures in the past. Really, the way to think about CapEx for our business is to focus on the Material Handling business -- Segment. Because -- which is about $400 million of revenue. And if we do a ratio on that, we spent about $6 million of capital last year, so about 1.5% of sales, which we think is a reasonable maintenance capital spend for that business. So you can see here we're increasing that year-over-year. We've got a number of growth initiatives. I highlighted a new product that we're talking about in our consumer business. And again -- but you should orient your ratios here to the Material Handling business because our MTS and Patch business have very low capital needs, if any.

Couple of others data points here on interest and D&A. And then you can see here at the bottom, the effect of the tax bill on our business dropping our effective tax rate to 25%.

So with that, I will open the floor up to questions.

(Operator Instructions) Your first question comes from the line of Chris Manuel with Wells Fargo.

I wanted to just -- I have a couple of questions and then I'll jump back in the queue. But if we could maybe start - and I have a couple of questions about a few of the businesses. If I start with the Distribution one, I see you flagged here about $3 million a quarter or so of a revenue hit from exiting a business. How should we think about -- the profitability was down a chunk too. Should we assume that maybe 1/4 or 1/3 of that was also related to that? I mean, I guess what I'm trying to do is get a sense of what 2018 versus '17 looks like? Do you think you're going to be able to get back some of the people or what you need to have done for that business to show some nice growth next year?

Yes. So let me walk you through some pieces of that, Chris, that hopefully will give you some clarity on the question you're asking. So we're behind in what I'd say is our process and systems for a world-class sales organization. So we invested in that in 2017. And in addition to that, we invested in adding people to help with that. So those are fixed cost increases in the face of a declining revenue situation, which is not the formula we're going for, obviously. So that's the driver of the profitability. The flip side of that -- one of the things -- all these investments we're making, we do with an idea that there is going to be a return on that investment. One of the things we invested in was a pricing -- really a pricing process that we put in place that has systems associated with it. That did yield results. And so that improves our contribution margin. And we were able to see that. We saw it even more so in the places where we're growing the business. So the -- we do look at this from a breakeven standpoint. In other words, we look at the contribution, we look at the fixed cost. We know we added fixed cost to this business as these -- part of these investments in 2017. We're now in a position where we feel that we have the tools that as we grow, the contribution margin is better than it's been in the past. We don't feel we have to put a lot more fixed cost in place. And so as we grow, we'll get that leverage on to the bottom line. In terms of specifics on that, we try -- particularly a product line that's as large as the one that we highlighted here, we felt that the complexity and the contribution from that product line was such that we weren't making money on it. So we don't exit a large product line like that without doing that kind of an analysis. And really feel that, that was a negative contributor overall. So that one was an easier decision perhaps than others. But the dynamic is more along the lines of what I described, which is that we intentionally invested in some things which added fixed cost, and we need to grow the business to get the return on that.

Okay. That's helpful. If I could switch gears and ask about Material Handling. Look, I appreciate all the color you gave as you work through your regional stuff over the next year. But again, somewhat of a similar question in that, I get that there's some puts or takes with a business divested and other components. But as you look at the path forward there, I mean the Ag business getting better, can you give us maybe some flavor as to what you've been seeing there? And correct me if I'm wrong, but that's a much higher than, say, corporate average Material Handling profitability business. So does that help you quite a bit? Or maybe if you could somehow frame that for us it would be useful.

Sure. I think the -- this is sort of the opposite story, the Material Handling business. So we took a lot of fixed cost out last year. The challenges we faced in the fourth quarter and some of that has moved in as we've moved into the first quarter here just because of the time it takes to get some of these things done, the challenges on the contribution side. So in order to meet the volume requirements while we were moving these factories, we incurred higher variable costs in the form of labor, in the form of using partners, et cetera. And so that was the story in the fourth quarter. We're not -- I'd be frank with you, we're not jumping up and down about the profitability performance because of that but we understood it going in, and it was more important for us to serve the customer well and make sure they got deliveries. We knew what we had to do, and we've been working on that basically as soon as we were able to free up the time and the resources to address it starting in December and working our way through the first quarter here. So on the cost side, we've taken a lot of action here in the first quarter to improve our flow in the factory, to improve our processes in the factory, which eliminates a lot of variable costs, particularly in the -- just in the form of people. And so that -- we will start seeing more improvement on that as we come through the first quarter. The other flip side of that is also the material costs have gone up. And the way our mechanisms work, and I'll give you a more specific on this, one of the things we don't like about our current pricing mechanisms is the -- as I said, the periodicity. So when you have a seasonal business, if the pricing of an inflationary effect is happening right as your volume is highest, you might fall out of the window of covering that as -- because the way the volume flows through your business. So what we want to do is a more -- decrease the periodicity of adjustments, things like that, which in some cases is easy and some cases it's harder. So I'm not giving you a specific answer here, but what I'm pointing to or the difference here is that the -- we're more focused on the variable side and looking at both the pricing and the cost side of that to get ourselves in a better position moving forward. I think through the first quarter, we're still seeing some of the effect of that because of the delay in our ability to price. That will be resolved by the second quarter. But then, there's a flip over in volume that you generally tend to see with the agriculture business already having been delivered and then switching more into the consumer and other businesses that have a higher spring and summer components. So a lot of complexity there. I'm not trying to be confusing. It's more just there are layers of this as we go. And we're improving each week as we go on both of those 2 key factors, but they're not all done yet.

Okay. Well, no, that makes sense. Last question, and then I'll turn it over, is on the M&A side. A lot of companies have told us that post-tax law change, so late last year and even the beginning of this year that the M&A gates have really kind of loosened up quite a bit. And tend to favor more strategic-type players versus private equity given what will be down the road leverage constraints for deductibility, things of that nature. Noting also that you guys did get a divestiture done late last year under the wire, as you sit today, how are you feeling about M&A markets, better, worse? How would you take the temperature, if I could, of your confidence level of getting something done you think this year?

I'd say, we're feeling better, but I'd say that's mainly because of our own process and ability to focus on this. As we've gotten through the -- we had to focus a lot last year on these structural changes we're making to the business, that takes a lot of our attention. We've shifted that later in the year towards M&A. And so we feel that we've got a good list of things that we're interested in. We're getting into the deal flow, which takes some time as well. People don't necessarily know us and what we're all about. In terms of whether the tax bill helps or hurts? I mean, it certainly has benefits on a lot -- in a lot of different ways. So I don't know if there's anything specific that I would say has changed in the last 2 months on that regard. But I think from a strategic perspective, I think that what we're seeing is that there is a interest in joining a company like ours that can invest for the long haul. And we offer companies who are perhaps not seeing this from private equity that ability to really have a place where they're going to be able to invest and have some stability for -- we -- our time horizon is very long compared to the other competitors that we're seeing. And that does play in as a factor. I think that we offer that. We're a lot of -- they go trade to private equity over and over and they don't get that. So that's one of the things that we think is an advantage for us. And pricing is, we're still seeing a wide range on that. There's a lot of money out there. And so you still have to get into the game with price. But I think ultimately, we have a good management team and can provide a lot of help to smaller companies that have interest in joining a strategic.

Okay. That's helpful. I guess, one last question maybe to help us tie some of this together. And I know you don't like to get too pointed or specific with guidance per se. But with all these moving parts and different components if perhaps we could just kind of take a look at cash flow and say that, look, you had a nice step up 2016 to 2017 in cash flow. There were a lot of, again, moving parts here in 2017. But -- free cash flow in 2018 being at least equal to '17. But do you have an opportunity to be something in the $5 million to $10 million range better? Or there'd be, may be, perhaps the puts and takes as you think about it on a '17 to '18 basis?

Yes. So I'll frame it in 2 ways for you, Chris. I think that first of all, like, if you look at Slide 11. I'm very proud of our working capital performance. There is still opportunity there. So I think we have opportunity to continue to improve. On the flip side, we're going to spend some of that on capital, we know that. And that's okay. The other thing I'll say is, we are focused on the targets that we've highlighted a year ago. And that's what we're shooting for. And I think if you look at the cash flow, we've hit the '18 number in '17. So we like that, and we want to continue with that. We think if we can hit these other targets, we're set up well to continue that trajectory. So -- yes, I mean, we're very focused on achieving these goals, and we think that as -- we have line of sight to what it takes to get there.

All right. But I mean, simply put it would be difficult to envision 2018 cash flow being lower than '17, would that be a fair statement?

Yes, I would say so Chris.

Well, I -- look, I'm just trying to make sure that I -- look, I appreciate -- CapEx is going to be up double where you were this year or close to it. So I get that there's a lot of moving parts and you highlighted working capital. So I'm just trying to make sure I have at least some -- and again, I appreciate that you don't like to get this specific and you hate this question. But just give us a hand on a public format that -- something that we can look at?

I think, Chris, that's what we're [shooting] for.

Yes. Look, I mean, we're -- as I said to open this entire presentation that's what we think is the best measure of performance. And we're -- we are not performing in that. Or if we see room for improvement in that, we go after it with a lot. So it's important to us that we -- for a number of reasons.

(Operator Instructions) Your next question comes from the line of Chris McGinnis with Sidoti & Company.

I guess, just to follow up on that and just talk about the goals you have out there from last year, when you brought out the targets and just -- I guess, just the confidence a year into to it, just how confident are you behind the target that you do have out there?

Sure. I think the way I'm framing is this, we put our targets forward, and we build our plans with the intent to hit them. So we have line of sight of what it would take to get to the kinds of targets we've set, particularly in the short term here. We're in 2018, and we have a set of targets in 2018. Obviously, on the free cash as a percent of sales, we hit that target in '17. And on the working capital target, we've over delivered on that throughout '17. So we feel that those are targets that we're comfortable with. I think the EBITDA and the operating margins have always been stretches. They've been beyond what this business has ever done in terms of margin performance in the past and that's why we set them. We want to make this business better into the future. And so those -- that's the next step for us and that's a lot of what I just was describing in terms of the mechanics of how we're thinking about getting there. It's -- on the Material Handling side, it's working on the variable cost side and on the Distribution side, it's working on the revenue growth and having that flow through the P&L. So those -- that's where we're focused. I'm make -- I'm boiling it down to what sounds like simple things. There are lot of challenges in getting there, but we're focused on that.

And we have no further questions in the queue at this time. I'll turn the call back over to Monica.

Thank you. Thanks to all of you for your interest in Myers Industries and 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. Thanks, and have a great day.

And this concludes today's conference call. You may now disconnect.