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Edited Transcript of MYE earnings conference call or presentation 8-May-19 12:30pm GMT

Q1 2019 Myers Industries Inc Earnings Call

AKRON May 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Myers Industries Inc earnings conference call or presentation Wednesday, May 8, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin L. Brackman

Myers Industries, Inc. - Executive VP & CFO

* Monica Vinay

Myers Industries, Inc. - VP of IR & Treasurer

* R. David Banyard

Myers Industries, Inc. - President, CEO & Director

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Conference Call Participants

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* Christopher Paul McGinnis

Sidoti & Company, LLC - Special Situations Equity Analyst

* Christopher Peter Sinnott

Cowen and Company, LLC, Research Division - Associate

* Ryan Thomas Mills

KeyBanc Capital Markets Inc., Research Division - Associate

* Timothy Ronald Wojs

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Tyler J. Langton

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Sharon, and I'll be your conference operator today. At this time, I would like to welcome everyone to Myers Industries First Quarter 2019 Earnings Conference Call. (Operator Instructions) Thank you.

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

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Monica Vinay, Myers Industries, Inc. - VP of IR & Treasurer [2]

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Thank you, Sharon. Good morning. Welcome to Myers Industries First Quarter 2019 Earnings Call.

Joining me today are Dave Banyard, President and Chief Executive Officer; and Kevin Brackman, Executive Vice President and Chief Financial Officer.

Earlier this morning, we issued a news release outlining the financial results for the first quarter of 2019. If you have not yet reserved 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 Dave and Kevin, 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.

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [3]

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Thanks, Monica. Good morning, everyone, and thank you for joining us.

We're going to start on Slide 3 with an overview of the first quarter of 2019. The quarter came in as expected. We're pleased with these results and are happy with the sustained progress from the continuous improvement efforts by our team in those segments.

In our Distribution segment, we continue to execute well on our transformation effort. Sales increased slightly year-over-year for the second consecutive quarter in this segment despite 1 fewer selling day compared to the first quarter of 2018.

In our Material Handling segment, while the overall segment revenue was down due to market conditions in 2 specific areas, we are seeing good results from our focused commercial efforts. For example, we achieved a double-digit sales increase in our IBC product line, which we sell to our food processing customers within our food and beverage end market. The team has done a nice job of finding new customers to invert -- to convert in this market, which is currently a small part of our revenue but a nice growth opportunity to help diversify our business and allow for less reliance on the seed box product. Sales of our new SmartControl product launched by Scepter in the fourth quarter of 2018 drove mid-single-digit growth in fuel containers. We're now entering the high season for that product and are seeing nice progress from our customers as the product has been well received by the market. We had a large customer order in our industrial end market, which drove mid-single-digit growth, offsetting some inventory destocking that we saw in the industrial distribution channel during the quarter. We'll talk a bit more about the pace we're seeing in the industrial market later in the call.

Adjusted gross profit margin expanded by 190 basis points to 32.9% as a result of favorable pricing in material margin as well as productivity savings achieved across all the businesses due to our lean initiatives. Despite the overall sales decline, we had an adjusted operating income increase of 6%, which shows how 80/20 and lean tools as well as the more asset-light model can drive improvement.

On the challenges side, as we highlighted on our last call, we faced a difficult comparison in the ag portion of our food and beverage end market this quarter. As a reminder, we had a record season in the prior year period, and the results in this market in Q1 of 2019 reflect a more normalized pace. The team did an excellent job handling the anticipated decline given the difficult comp.

Turning to our vehicle end market. The ongoing retail inventory correction within the RV market continued as we saw weaker demand again year-over-year from our OEM customers. We expect this pause in demand to continue to the second quarter as inventory levels across the retail and wholesale channels align themselves. Within this business, we made the decision recently to consolidate manufacturing operations by closing a plant in Michigan and moving operations down the street into our nearby Bristol, Indiana facility. We estimate that we're going to spend $1.1 million in costs, and we'll have $1.5 million in annualized benefits in 2020. The higher season for RV demand from wholesalers takes place in the first half of the calendar year unless we want to be prepared to complete these consolidation actions in the slower portion of the season. Additionally, to address and potentially offset the seasonal nature of demand in this market, we spend a lot of time working on finding and developing new market opportunities and applications in adjacent markets. The team has done an excellent job in the quarter with new product wins in these new niche markets.

Now I'll turn -- I'll now turn it over to Kevin to go through our financial review of the first quarter.

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Kevin L. Brackman, Myers Industries, Inc. - Executive VP & CFO [4]

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Thanks, Dave, and good morning, everyone.

Today, I'll review our 2019 first quarter financial performance, including our balance sheet and cash flow. Please turn to Slide 4 of the presentation and I'll begin with a review of our first quarter operating performance. All numbers in the presentation reflect continuing operations.

Net sales for the first quarter were $139 million, a decrease of about 9% compared to the first quarter of '18. The decrease was primarily due to a decline in sales in the Material Handling segment within the company's food and beverage and vehicle end markets.

The adjusted gross profit margin increased 190 basis points to 32.9%. This was primarily due to favorable price-cost margin and productivity savings, partially offset by lower sales volume and unfavorable mix.

Our adjusted operating income increased 6% to $12 million for the quarter. This was the result of the higher gross margin as well as a decrease in SG&A due primarily to lower variable compensation and benefit costs compared to the first quarter of last year.

Adjusted diluted earnings per share were $0.23 compared to $0.24 for the first quarter of '18. The decrease in adjusted EPS despite higher adjusted operating income year-over-year, was driven by a higher diluted share count compared to the first quarter of last year.

Now let's turn to Slide 5 for an overview of our performance by segment. Net sales in the Material Handling segment decreased about 12% to $103 million. The decline was driven by a decrease in our food and beverage end market, due to more normalized demand for our seed box compared to the first quarter of '18 and a decrease in our vehicle end market due to the continued decline in the RV market. These decreases were partially offset by higher sales in our consumer end market, driven by incremental sales from the new SmartControl fuel containers and higher sales in our industrial end market driven by a large customer order we received in Q4 of last year. Material Handling's adjusted EBITDA was flat year-over-year, despite the lower sales. Favorable price-cost margin and productivity savings mostly offset the lower sales volumes and unfavorable mix.

In Distribution, net sales increased 1% to $36 million, despite 1 less selling day compared to the first quarter of '18. Domestic sales were up 4% on a daily run rate basis. International sales were down due to a decline in export shipments. Distribution's adjusted EBITDA was flat during the quarter. The segment continues to execute its transformation plan, which includes enhancements in its go-to-market strategy, the implementation of 80/20 to drive improved contribution margins and optimization of its logistics and overhead costs, with the goal to expand the EBITDA margin to 10% by the end of 2020.

Please turn to Slide 6, and I will review our balance sheet at the end of the first quarter as well as our cash flow and working capital performance. We generated free cash flow of $2.4 million compared to $11.6 million for the first quarter of '18. The lower cash flow was the result of higher variable compensation payouts and increased capital spending compared to the first quarter of '18, as well as inventory build in our Scepter business to prepare for anticipated higher demand for the new SmartControl fuel container during the second quarter of this year. Working capital as a percent of sales at the end of the first quarter was 5.5%, which was consistent with previous quarters. Debt-to-adjusted EBITDA remained consistent with previous quarters at a ratio of 1.2.

I will now turn the call back over to Dave who will review our outlook for 2019.

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [5]

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Thanks, Kevin.

I'll move to Slide 7. I'm going to review our 2019 fiscal year outlook. We're holding to our previous forecast of flat sales with gross -- with growth in adjusted operating profit and margin and adjusted diluted earnings per share of $0.75 to $0.85. Please note that this is an adjusted number because of the restructuring actions that we recently announced.

Looking at each of our end markets, we are consistent with the outlook we provided back in March. Let's spend a little time on each market, though, to provide some context on what we saw during the quarter and what we expect to see for the rest of the year. We're seeing good pace, as expected, in the consumer market with much of these coming from our new product launch. The market itself is a little late in its seasonal uptick due to the late spring weather, but we've seen good results due to the adoption of our SmartControl product in the market.

Food and beverage came in, as expected, in the quarter. And as I highlighted earlier, we had good results from the food processing portion of the business and expect that to continue through the year. One area of uncertainty as we head towards the second half of the year is with our ag business. We currently have limited visibility here. Well, that visibility should improve as we move through the second quarter. And our expectation in the latter part of this year is for this business to perform at a similar pace to the season that just concluded. So while Q4 2018 and Q1 2019 were down, we expect this business to be in line with our current pace in the next season that starts in the fourth quarter of this year. We expect to have more detail for you on this by our second earnings -- second quarter earnings call at the end of July.

In the vehicle business, we expect RV demand from our wholesale customers to continue to decline year-over-year, particularly in the second quarter as retailers are still balancing their own inventory levels with current market demand. We move back into the -- as we move to the back half of the year, we believe the inventory levels across these 2 channels will approach equilibrium, which should allow demand levels from our OEM customers to normalize. The retail environment for RVs is performing better than our results would indicate, as we're not seeing as large of a decline in percentage terms, which bodes well for how quickly the industry can get out of its inventory overhang. Elsewhere in vehicle, there's a steady pace in our business that we're seeing slight slowdowns in the automotive sector similar to what others are seeing as well, but nothing that's going to change our view of the market here.

Industrials are also steady with a bit of destocking coming out of the first quarter. Though so far in the second quarter, we've seen a more normalized pace in our channels akin to the type of steady environment that the industrial market indicators would signal. With the sales from the large customer -- and the current pace, we see this market as an area of low-single-digit growth in 2019.

Turning to the auto aftermarket, we've now enjoyed 2 quarters in a row growth within our Distribution segment. We expect this improvement to continue as the year progresses aided by the transformation progress -- process that we're executing. While we're pleased with the start, we do anticipate that growth will be higher in the second half than in the first. This is due in part from the fact that our transformation actions don't all deliver immediate returns. Other factors that the second quarter of fiscal 2019 faces a more difficult comp as last year's second quarter was the best quarter of the year, given the strong month of May; and we, again, have 1 fewer selling day in Q2 2019 compared to the second quarter of 2018.

With that, on Slide 8, we are reiterating the same guidance as outlined on our most recent earnings call, noting flat sales with earnings per share on an adjusted basis coming in at $0.75 to $0.85 per share.

And with that, we'll now open the line to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Tyler Langton with JPMorgan.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [2]

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Just within Material Handling, I mean I -- it obviously -- it was impacted by lower volumes and the weaker mix. But EBITDA and margins kind of held up from, you mentioned, the favorable price-cost spread and then productivity savings. Could you just I guess give a little bit more detail on where these price-cost gains are coming from in the productivity? And just sort of how sustainable you think they are for the balance of the year?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [3]

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Kevin, do you want to take that?

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Kevin L. Brackman, Myers Industries, Inc. - Executive VP & CFO [4]

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Yes. So on the price-cost margin, I -- we took a number of pricing actions in the early part of 2018. And so there was year-over-year benefit from those actions in the first quarter. I expect the price-cost margin to continue to be favorable in the second quarter, but it won't be of the same magnitude that we had in the first quarter due to, like I said, lapping those price actions that we took last year plus some of our customer contracts, the pricing is linked to resin cost. So we've obviously had lower resin cost in the first quarter that will start to have an impact on pricing in Q2.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [5]

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Okay. So that's helpful.

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [6]

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I think the thing I'd add to that is on the productivity side, we are seeing improvement there broadly across all of our factories. That's due to our lean initiatives. And that is -- those are improvements that will continue. There's -- and they've sort of phased in throughout last year. So while some of this is price and some of this is resin benefit productivity or gains that should -- we intend to sustain. So you should see those continue throughout the year as well.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [7]

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Okay. Great. And just within Distribution, I think revenue growth for the quarter was up 1%. I think you mentioned that the daily run rate of domestic sales was up 4%. So I guess can you provide a little bit more color just on the revenue growth for the main businesses? I think last quarter, maybe it was -- equipment and international sales were a little weaker. So just -- I'm just trying to get a sense of when domestic sales continue to be sort of solid, when that will start to flow through and show up?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [8]

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Right. So the -- our primary area focus in the transformation has been on our domestic revenue, which is the largest portion of our business. And that has -- we're starting to see the results of that work. And it -- the 4% daily run rate growth was broad-based across the country. So it wasn't any particular regional pocket or a particular set of sales people. So that -- which we think is good. We did take some actions in the first quarter that reorganized the sales force to be more efficient and to reorganize our territories. We think that's going to have additional benefit of focus. We've -- we are also focusing an additional team on larger accounts. That takes a little longer because those are -- those aren't wins that you get in a transactional sense, you're winning larger chunks of business, and we're starting to see some of that. But that takes a little longer, that's why we're looking more towards the back half of the year on that. So broadly, we're pleased with the progress that we're making domestically. I think the -- from an international standpoint, we have 2 pieces of that business. We have a Central American organization, and that business has been steady. And then we have what we call export, which tends to be lumpy. And we did see some lumpiness in that on an upside last year in Q1 that we didn't have this year. Those are -- these tend to be large bulk orders from -- we sell through other distributor-type organizations internationally, and we didn't have as many larger orders in that area. That business tends to be somewhat lumpier. We have redirected some of our focus on that to make sure that's not bringing us down. But overall, I think that if you look at the daily sales pace, it was -- we're pleased with the progress. Again, nowhere near where we want to be, but pleased with the progress in the quarter. And that if you pulled out that 1 section of the broader rest of world and looked at our Central American and U.S. sales rates on a daily basis, you'd see pretty decent growth.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [9]

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Okay. And then just -- a final question just on your M&A strategy. I guess can you talk about a little bit on what you're seeing with certain number of opportunities and sort of mobiles out there? And is it sort of -- is price sort of the biggest obstacle? Or is it just not finding companies that fit with your strategy?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [10]

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Yes. It's certainly not the latter. It's -- I'd say the barrier that we bumped into last year was price for sure. And then frankly, we wanted to spend more of our effort and focus on getting the transformation going in our Distribution segment in the latter part of the year. We're -- we've rebuilt our funnel -- changing our approach a little bit, to honest with you, to try to attack that price problem. So we've approached -- not just entering into auction-type situations, but also proprietary deal sourcing ourselves. And I think that's going to yield a better outcome this year. So we're looking at the market. We -- I think the funnel is just as robust as it was before, but we're trying to blend in as -- add some proprietary deal flows as much as we can because of some of the pricing we saw on the auction processes.

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Operator [11]

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Your next question comes from Tim Wojs with Baird.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

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I guess my first question really on the consumer business. I was hoping you could maybe talk a little bit about the Scepter launch, the new product? Kind of what the reception's been like for that product, and if there's an able -- if there's a way to just kind of frame or quantify the benefit that might have in Q2. Just trying to think of the growth and the margin implications on that.

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [13]

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Sure. I think the reception has been very good, particularly from our channel, the retail channel. I think that the -- I don't want to get into too many details. We don't really give profit details by product. Obviously, we invested a lot of money in this launch. And so we're interested in getting a return on that. But really, ultimately, this is about delivering a product to the consumer that functions better, is easier to use but is equally or better from a safety and environmental standpoint. And we think we're doing that with this product. I'd say, it's early days of the launch still. We certainly have loaded up our customers and their warehouses with product through the first part of the year here. And now we're into that replenishment cycle where we're relying on consumer uptake. And the spring season's a little late this year, but we are -- we've seen the volumes that we expected to see here coming out of April. So all signs are good there.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [14]

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Okay. Okay. And then maybe on the food and beverage business and particularly on ag, how much is the -- it's pretty normal for you to have limited visibility at this point in the year into the back of the year, right? It's not -- that's not a comment that's different than where you'd be in prior years, right?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [15]

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That's correct. We just want to make sure that the market is -- that our investors understand that. Again, it's reiterating that. That is true. I will add -- I'll add 2 things about the ag market that make this year particularly challenging to get a visibility on. One is the tariffs, which is all over the news, obviously. And how that might impact the farm economy. We don't know. And so the downside of that is that if there's -- if our farmers get slapped with a bunch of tariffs from China, that's not good. The other factor which this year has is the moisture in the soil, or the kind of flooding we've seen in the Midwest is historic. It's -- I read some articles about this year being the wettest season in the Midwest for over 100 years. So that's delayed planting. And it's sort of put some uncertainty into the yield, that the farmers will get. Now the flip side of that is that will drive prices up and that's -- or potentially drive prices up, I should say. And so it's a question mark. The farmers that are sitting on a lot of seed right now -- or excuse me, on a lot of green right now might benefit from that but it's -- it adds another layer of uncertainty into the farm economy that we haven't seen in the past years. So put those 3 together, this is -- it's -- it is normal for us to not know a ton of detail. But we are usually having conversations about that pace of planting at this time, and we're not quite there yet with our customers.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [16]

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Okay. Okay. Okay. That's helpful context. And then I guess lastly, on the RV market. Would you say kind of sequentially, things maybe are getting better and you're just kind of lapping some of the year-over-year comparisons from last year in RV? Because it does seem like that market could may be kind of align and return to growth maybe as early as the back of this year. If not, 2020?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [17]

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So here's -- let me tell you how we look at the market. We take a look both at the retail pace as well as the wholesale orders, and we have obviously very good visibility on the wholesale side. We don't -- we have to get the data on the retail side. But the retail curve, if you will, is a bit -- is a perfect cycle. It's always very low in the winter months and then it peaks in June, July time frame. And it's a very nice curve, the cycle that you see every year. That curve has so far been fairly predictable. So in other words, the people buying RVs in the market. That pace has -- it's slowed a little bit. The curve has shifted down slightly, but the uptick that we normally see in this time of year is occurring. So that's good. But the -- if you look at the wholesale shipments, the OEMs try to blend and level load their building throughout the year. So it's usually not a cyclical curve. That curve has tilted down over the past, I'd say, 6 to 8 months pretty significantly. And the obvious reason is there's overhang of inventory in the market. And if you drive by an RV dealer, you see it. So what we think is, given that demand at the customer level and the consumer sentiment is -- it's still okay, it's about average, we think that the market will still generate enough demand to -- as they brought down their output at the OEM level, we'll start seeing that inventory overhang disappear towards the back half. So that's -- we're monitoring that. We're looking for that OEM curve to stabilize, and it's probably getting there. We predicted looking forward where we think that equilibrium occurs, and we think the second half of the year will be a more normal pace for everybody. Again, to highlight, second half of the year is always a slightly -- there is a -- there is still a cycle to the OEM build. They don't perfectly level load throughout the year. So there, just to highlight, the second half still is a little lower. But we think year-over-year, we should be able to get back in the growth mode there.

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Operator [18]

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Your next question comes from Chris McGinnis with Sidoti & Company.

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Christopher Paul McGinnis, Sidoti & Company, LLC - Special Situations Equity Analyst [19]

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Can you maybe just talk a little bit about some of the new products you're bringing into the Material Handling side? And what kind of focus those are -- maybe the industries they are on?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [20]

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Sure. So let me start with a -- obviously, we've launched the SmartControl product with the -- in the -- for the fuel container consumer market. That's a pretty big launch and a pretty large investment from our standpoint. So that's our marquee product. There are a lot of smaller things going on. One that I'll highlight, is not really a brand-new product launch, but it's taking a product that we launched a few years ago and really have only gained traction in 1 particular market segment, and that's the IBC product that I mentioned in our food and beverage market. That's a bulk container that moves processed food product or ingredients, if you will, through a closed-loop supply chain. The team there has done an excellent job of finding new applications or market segments for that and demonstrating that it's a conversion cycle. So it takes time to prove out the -- and test the product with the customers. And we're starting to see some uptick on that into new market segments that will expand the coverage of that particular product line in the market. And we saw some good results in that. It will be lumpy as these kind of things go. It's just not as linear and transactional of a product launch as the SmartControl is. So you'll see some lumpiness in that as you have to win conversion packages from various food processors. So that's another one.

We do have some much smaller product launches in a variety of different areas, for example, to offset our cyclical business in RV. That business has done some nice work in finding alternative markets where we can produce. And these are very small-run-type products. But it's a -- in that particular type of manufacturing, you can -- you have a very flexible molding capability and so you can -- it can be fairly quick to market. A number of different products there. They're all individually nonmaterial to us, but they build up over time. And that's -- the team has done a nice job there of finding opportunities, being able to quickly turn those into new product launches as well.

So those are some examples of the things that we're bringing up. Obviously, in our Distribution segment, we're doing 2 different things. We are doing an 80/20 analysis, which, in the first stages of that, will reduce the number of products that you're putting out in the market. But that doesn't mean we're not also looking at new products that we're launching. And again, in that business, given the SKU count, your -- new products generally tend to individually be nonmaterial. But in aggregate, they build up.

So there's 2 sides to the -- to Distribution. One is making sure that we're rationalizing our SKU count to be efficient, but not ignoring the fact that we want to bring new technologies to the market for our customers.

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Operator [21]

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The next question comes from Chris Sinnott with Cowen.

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Christopher Peter Sinnott, Cowen and Company, LLC, Research Division - Associate [22]

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I'd like to ask about the initiative, the effort to really modernize your sales strategy, in particular, e-commerce, digital selling, whatever what you want to call it. If you could just sort of unpack where you guys are in that process, that would be helpful.

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [23]

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Thanks, Chris. Great question. The -- it is definitely part of our multichannel market approach here, as part of the transformation. And really, there are couple of ways that you go to market these days in e-commerce. You've got, what I'd call, that third-party seller, this -- that -- the Amazon, if you will. Someone that's put up a website that you plug into. We're doing that today. There -- and you can do it in multitude of ways through their channels. And we're primarily a -- if you go on, we have several of our key products on Amazon. We've had some very good success there. Then as your own -- there are other types of sellers like that, that are more specialized in certain markets that we're working on. And then you have your own e-commerce platform. We have our own e-commerce platform. We've done a lot of testing with it to try to work out what the customers want and what they like about it. Ultimately, we like certain customers to have their own portal, if you will, on that. Obviously, pricing is a key part of that. So that's part of the investments that we're making this year to make sure what we have is suitable. I think long term, we're going to want to continue to develop that. And we see that we're going to have more and more from our sales come through that type of channel. I don't want to be specific about which one, whether it's our own or whether it's a third party. But we do anticipate that more and more, we will be moving to that channel down the road. And it opens up -- and what we're finding is it opens up the door to some customers that we didn't even know existed. So -- which is great. So it's not a cannibalization issue in some cases.

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Christopher Peter Sinnott, Cowen and Company, LLC, Research Division - Associate [24]

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That's helpful. And if I could just lastly go back to the very first question on the call about pricing versus cost margins and the unfavorable mix. Can you just help me understand whether that price-cost benefit that you guys had this quarter, is that offsetting unfavorable mix within the same product segment? Or are these dynamics happening in separate segments? That's -- I'm just trying to wrap my arms around that concept.

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Kevin L. Brackman, Myers Industries, Inc. - Executive VP & CFO [25]

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The unfavorable mix in Q1 related to the fact that due -- was due to the decline in the seed box revenue. And so I would say that the unfavorable mix is really unrelated to the favorable price-cost margin.

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Operator [26]

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(Operator Instructions) Your next question comes from Ryan Mills with KeyBanc Capital Market.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [27]

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I wanted to start with my first question. Dave, you have this goal of 10% EBITDA margins by the end of 2020. Can you walk us through on how you get there? I know the $5 million to $7 million in annualized savings will drive the chunk of it, but do you have a growth expectation in mind?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [28]

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Well, I'm not -- again, there is -- if you look at our results this quarter, it's a good example of what's possible with this business. So we declined in revenue -- fairly -- a pretty big chunk of revenue came out from the seed decline year-over-year, and yet we still improved our profitably. So if you add that back in now, we don't expect -- and as I said, we don't expect that, that seed volume will be the same. That was a, I think, historic year in the '17 to '18 season. But if we can get a little bit of that revenue back, the flow-through -- our goal is to have that flow-through be very, very accretive. And so it doesn't take a whole lot to get us to where we need to be, given the performance that we've seen here in the first quarter.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [29]

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Okay. And that 4% daily sales growth in Distribution was nice to see. Can you provide some color on preliminary April results for both segments? And I'm curious, in Distribution, were there any weather headwinds in the quarter? And also, was there a benefit in 1Q '19 from the timing of Easter? And will that be a headwind in April sales?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [30]

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Yes. So as I mentioned, there's -- we're kind of stuck with 1 few -- 1 less selling day in both first and second quarter this year for oddities of the calendar here. So it's a headwind for both quarters. I would say, the late spring -- that people -- so there is a dynamic of changing from winter to summer, and so that was a little late. We saw some of that coming back in the second quarter. I'd say, the pace is similar in the second quarter so far. So it's -- like I said, last year, we did see a pretty decent uptick due to number of factors. And so we had a -- Q2 of last year was our best quarter. So we have a little bit of tougher comp in the second quarter of this year. But again, from a sequential pace, everything that we are seeing is what we would expect in the second quarter, and the pace through April was similar to the first quarter.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [31]

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Okay. A couple of more questions from me. I'm not looking for a 2Q '19 guidance, but should we expect that gross margin improvement year-over-year? And the reason I ask is because there's a lot of puts and takes. It sounds like you're getting nice price cost in Material Handling, but I think you're going up against a strong comp in the second quarter where 2Q '18 gross margins were up about 290 basis points year-over-year and 330 basis points sequentially compared to historical average of about 70 basis points. So any color you could give on how we should think about gross margins in 2Q would be helpful.

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [32]

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I'll put this way, and then if Kevin wants to add anything, I'll let him. I'd say that a dynamic that you guys should factor in and think about is -- I mean first and foremost, productivity, we continue to improve. But again, as you pointed out, that is a tough comp, and some of that comp was also in some of -- catching up in price year-over-year that Kevin mentioned earlier that we won't -- that diminishes -- that year-over-year improvement diminishes as we go through the year. The other thing I'll say is that we do tend -- there's a lag in our -- we're getting better at it, but there's a lag in -- as material cost inputs change, there's a lag. And we suffer from that on the way up, and we benefit from it on the way down. So what you saw last year is a sort of regular improvement as we caught up to the cost increases and then as it switches over and the cost of our material inputs goes down, we start enjoying a nice spread. But then we -- obviously, at some point, we are -- the market realigns our pricing with that. So there's a lag on both sides of it. The other thing I will say is we do -- and we anticipated this and I think we highlighted it, and we're working through pricing on it. But we do see a little bit of cost headwind from some overseas purchasing in our Distribution segment from products there. And again, some of that we can pass on quickly, some of it we can't. And so your -- that does affect our gross margin as well. And we didn't have as much of that a year ago. And that's -- that is kind of tariff-driven. And as we highlighted last year in our -- in middle part of the year when the tariffs first came out, we do anticipate we can overcome these. But there's an input cost that goes to that. But again, it's that same dynamic. If we have to catch up to it, we don't immediately -- we don't have the immediate ability to change our pricing. Kevin, did you want to add anything to that?

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Kevin L. Brackman, Myers Industries, Inc. - Executive VP & CFO [33]

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Yes. I think that summarized it well.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [34]

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Okay. And then going to back to your go-to-market strategy in Distribution. It sounds like you're putting a little bit more focus on e-commerce with both your website and third-party website. Is there anything else you're doing differently compared to the past? And what are some of the early feedback from your customers?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [35]

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Yes. We're doing -- that's one channel of many that we're using. So there's quite a bit of change that's going on. One of the things we accomplished in the quarter was the realignment of our sales force in terms of leadership, in terms of territory alignment and those sorts of things. So the customers -- so far, it's been well received. I think that the -- and the sales force has received it well -- as well, and that's half the battle. So there are a number of other things we're doing in terms of aligning our sales for how we are serving certain customer groups. And that is all designed to make the customer happier, which we feel is what's going to help drive us -- drive customers back into our court. Because the -- again, I think we have a good brand in the market. I think customers want to do business with us. We've just made it too complicated and too difficult for them in a couple of pretty important areas. And so changing the service level of various customers. Some customers will get different service, I would say. Our goal is to still provide them with the best service for who they are, but it's changing that service level to orient towards who the customer really is and what their needs are. So that involves a number of different changes, both operationally as the customer service, inside sales as well as the territory and multichannel approaches.

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Ryan Thomas Mills, KeyBanc Capital Markets Inc., Research Division - Associate [36]

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All right. And then my last question, going back to the consolidation of your manufacturing facility in Material Handling. One, is that a response to the declining RV market? And two, should we expect any near-term disruptions to the top line?

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R. David Banyard, Myers Industries, Inc. - President, CEO & Director [37]

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So it's -- I'll put it to you this way. We have a number of ideas of how to best align our manufacturing footprint. And you have to move on those when the opportunity presents itself. So because of the point that you just made in there in terms of disruption, we want to minimize that whenever we do one of these kinds of things. This is an opportunity that we've been talking about for a bit of time now. We're taking advantage of the fact that we have a lower volume situation that allows for this to happen a little more seamlessly, and it gives us the opportunity to plan it effectively into -- really, the move will happen in the second half during the lower portion of the season for that business. And so on one hand, yes, it's a challenge to do. And so we want to make sure it has the minimal impact, and we don't think it'll have an impact on our top line. But we've had this on the idea book for a while, and it's -- it just makes sense now with this opportunity to jump on it and do it. So there are -- you try to do productivity improvements on a daily basis that are point-of-impact-type things on the factory floor. There are larger strategic operational moves that we look at. And we look for the right time to do them, and we felt that this was it for that business. I mean the goal -- obviously, the goal as it was with our previous realignments is to make sure there's no impact to our customers. And so that's -- we want to make sure we time it so that there are no impacts to our customers. And that's -- I think we're taking advantage of the timing here for that.

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Operator [38]

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And at this time, I will turn the call over to Ms. Vinay.

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Monica Vinay, Myers Industries, Inc. - VP of IR & Treasurer [39]

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We thank 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 our website under the Investor Relations tab. Thanks and have a great day.

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Operator [40]

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This concludes today's conference call. You may now disconnect.