Greetings and welcome to the Myers Industries Second Quarter 2016 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Monica Vinay, Vice President of Investor Relations and Treasurer. Thank you. You may begin, Monica.

Thank you, Jerry. Good morning. Welcome to our second quarter 2016 earnings call. Joining me today are Dave Banyard, President and Chief Executive Officer; and Kevin Brackman, Vice President, Corporate Controller and Interim Chief Financial Officer. Earlier this morning, we issued a news release outlining the financial results for the second quarter of 2016. If you have not yet received a copy of that release, you can access it on our website at www.myersindustries.com, under the Investor Relations tab. This call is also being webcast on our website and will be archived there along with a transcript of the call shortly after this event. Before I turn the call over to management for remarks, I would like to remind you that we may make some forward-looking statements during the course of this call. These comments are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors is set forth in the company’s periodic SEC filings and 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. Thanks for joining us. I’m going to start on Slide 3 with a summary of our second quarter. The quarter came in below our expectations on the top-line. It did come in where we thought it would on the margins, but talking about sales we were down 12%, 11% of that is organic, 1% due to currency. And what we highlighted in the first quarter, we thought that the second quarter would be a tough comp year-over-year. Our results were worse than what we had expected. The main driver of that is the difficult capital spending environment in several of our key markets and I’m going to go into more detail on that in the later slide. On the margin side, we’re slightly up year-over-year similar dynamic to what we saw in the first quarter with good operational discipline that lower input costs. We have done some product line rationalizations and some operational improvement that have contributed to the stronger margin. Earnings per share were $0.19, adjusted earnings per share from continued operations at $0.21, and our free cash flow was down slightly year-over-year, mainly due to capital spending and we’ll get into more detail on that later as well. Let’s go to the next slide. Slide 4 is our GAAP income statement. You could see at the top, the impact of our sales and our gross margin. A couple of things I wanted to highlight on this slide in the SG&A and impairment charges. We did have two one-time charges during the quarter: one was for the impairment – an impairment related to the exit of a product line, and the other was an increase in our environmental reserves that shows up in our SG&A. You can see on the operating line, a…

At this time, we’ll begin the question-and-answer session. [Operator Instructions] First question is from Adam Josephson, KeyBanc Capital Markets. Please go ahead sir.

Thanks, Dave, Monika. Good morning.

Good morning, Adam.

Good morning.

Dave, just a couple of clarification, just one on consumer sales. Can you just talk a little bit – I think you talked about selling more a lower margin products, but if you can just help us better understand that a bit that would be great. And similarly on the equipment side of your distribution business, can you just talk about what you think the weakness was there?

Sure. So maybe a clarification on the consumer side, not lower margin products per se, but lower price, those a cheaper version if you will. It’s a combination effect. When we went to market through last fall, which is the big buying season, we had new product that we wanted to sell. We would launch them late, which we’ve highlighted before and I’m not going to rehash all that. But if you think about the shelf space and what depth filled in, they were – whatever that’s getting filled in were lower priced products. So it’s – the margins weren’t terribly off, it was more of a lower priced type products. It’s more of a mix issue from that – from the top-line rather than the bottom line. But it does lower both – it’s just getting lower dollars. And that’s more of the dynamic there. I mean, honestly, we thought we would see a better given the current consumer indicators out there. We thought we’d see a better market for this in the spring and we did it. So we’re adjusting to that. I think we’re also – a couple of points on the business as a whole. The founder did retire this spring. We brought in a new President and he is off to a great start and really has been laser focused on how we can set ourselves up for this next coming season, better than we did last year and we’re really excited about that. So that’s our focus right now what that business is to make sure that we have the right products positioned in the right way coming into the winter and next spring season, because this is the time that you’re starting to think about that to go. Related to the capital spending in the distribution side, the dynamic there is again if you think of our customer base, it’s a pretty broad view of different types of shops. And the capital spending there often is driven by sentiment, how those people are feeling. So if their base are not full and they’re not feeling like there’s a constant steady state of business, they’re probably going to push off any kind of large expenditures. And I think that’s the dynamic we’re seeing because as we went out and we spending a lot more time with what we think are our better salespeople to release get agaugefrom them on market and then we’re working on our sales force initiative on the underperforming sales people to improve their performance. But from the people that are high performing salespeople, they did see a lower than expected seasonal level of activity in a lot of our key – our independent tire repair stores. And to me that’s a huge indicator as to why we didn’t see the normal level of capital spending we saw in that market.

Dave thanks. And just one clarification on the consumer side. Can you just give us examples of some of the lower price products just so we have can better kind of grasp onto what you’re talking about.

Yes, it’s going to be more of the legacy products that we’ve had before. So we priced our products to be – the newer products are – have what we think add more value. And so, those are going to be priced differently than the other set of products we have. We still think we have a better product than the competitor, but at a certain point you’ve got to start computing on features and that was our game plan coming into the year. And because of our – of how late we want those products, we weren’t really able to get the traction we wanted with the product that have the new features. I think they still do have good staying power in the market and we’re building sort of new strategy around what we have in terms of new products for next year in that regard.

Thanks Dave. And just two others and I’ll get back in the queue. One is Brazil, can you just tell us broadly what you’re experiencing there just you’re in a couple businesses there.

Yes. I’d say, it’s – Brazil actually came in pretty close what we expected. It’s not great, but I’m not going to try to say hey its stabilized down there or anything like that, but we’ve gotten I think better clarity on where we stand down there. And part of that’s also we had a leadership change down there as well early in the second quarter. The dynamic there that particularly for things that you look at, it’s hard – you can't really take what’s the demand level for beer, it’s in the short-term or for soft drinks in the short-term because the spending level was literally shutdown. And they told us that, but the first quarter they basically said we're not going to be ordering crates in the beverage markets. And so, we are now seeing, they've made good on that. And now they are starting to place some orders, but it's more muted. So I don't know that there is any again real uptick in there and things, but maybe that’s stabilized. Elsewhere in the market, there’s some activity. I think part of that was that there were some pent up demand from people just not knowing when you have a big political turmoil if they had back in this early part of the spring. I think people just wait. And so, we start a bit of that and things like automotive and manufacturing. So I don't want to say, hey things are picking up. The economy is still not doing well down there, but we are seeing some activity and we’re delivering products.

Sure. Just one last one before I get back in the queue, Dave. You started in this role in December. Can you just talk, so that’s been seven months or so. Can you just talk about what's been positively surprising to you, what have been the negative surprises, presumably economic activity domestically and in Brazil the most likely negative surprises? But can you just talk about what's been different than your expectations thus far in the job?

Sure. I mean, I don't think that – in terms of the company and job, I don't think – it's very similar to what I expected. So, we're a small – in euros, we’re a small manufacturer and I think the challenges we have are similar to companies of this size. So nothing internally is a surprise to me. I think that at the beginning of the year or let’s say more towards the tail-end of 2016 and even frankly a lot in the first quarter, there has been a bias in the market and the world that we would see – that we would start coming out of some of the commodity down pressure and that's been around for the past few years. And the inventory levels and the supply glut has continued. And that's probably been – and that's you see that in a lot of the various end markets and that's we’ve been talked about a lot since sort of beginning of June and so that's a bit worse than I think any of us expected. And so, we've learned a lot about our interaction. We spent a lot of time in the second quarter as part of our strategy process, really is learning the buying dynamic and the value add that we provide to people like the seed companies, food processing companies and so forth. So we know a lot more, but unfortunately what we know is that when times are this bad, they really do stop spending. So, we've just got to be prepared for that because that's the reality of our situation.

Thanks very much, Dave. I'll get back to in.

We have a question from Chris Manuel, Wells Fargo Securities. Please go ahead sir.

Good morning.

Good morning, Chris.

Dave, I wanted – I appreciate the color on Slide 8, the couple of bullets here on a strategic update, but kind of to follow along the thing that Adam just spoke out. You had about seven months now at the helm, I'm confident that you've developed quite a bit more with respect to strategy and vision. And what you think Myers can look like down the road or a path? Could you perhaps share with us some of what that vision is whether is it – do you want to be a technology driven company? Do you want to be a process or a new product driven company? Or what you view some of the future might look like at Myers Industries? Or perhaps maybe share with us when you might be prepared to share some of those items with us, maybe financial milestones et cetera. How should we think about the process?

Yes, Chris, it’s certainly a fair question. It's pre-mature at this point. And let me – I'll give you an answer to the second part of your question, which is my goal and plan is to have by the end of this year to be able to explain to you where we’re going. And it's not that I'm not working on this, it’s there's a process to it. And so, I've come out of the second quarter and what I've highlighted on this at the tail-end of the presentation is, I have a much better understanding now of our end markets. That's what you've got to do first. You've got to understand the markets and where we're strong, where we need to work on. So we've made a lot of progress on that. And I think if you would talk to anybody within the organization, they would say the exact same thing. So we're learning how to be good at marketing. It's not a skill we've had in the past. So that's a starting point. But then there's a lot more to an enterprise strategy, and there's a vision to it. And obviously, I'm forming opinions in my mind. But there's a lot of work to be done with the board in terms of what we want to be and how we're going to get there and we’re not through that yet. So, it would be pre-mature for me to put anything out there beyond what I put out just now.

All right. Maybe just one more question kind of along those lines before I switch gears, but as you look at the current portfolio today, how do you feel about it? Are there parts or pieces that you may say where I really like this, but I want to go deeper or do more with…

Yes, actually…

And you struggle with fit or how do you…

Whenever you have a diverse business, there's going to be both for sure. I'm hesitant to be very specific on some. And then the reason for that I'm not trying to be shifty, but we are a small company and some of our markets are small. So, it's going real specific on strategic initiatives around niche markets that we have is not something I'm going to do now or in the future. So because I don't – but I'm getting that away for free to our competition and that's not what we're going to do. We've done all the strategic – we put a lot of effort in the strategic marketing, and I want my competitors to just have it. But, yes, there are areas. A couple of – I will share a couple of things with you. When you do deep strategic marketing work, you very often confirm hunches that you have whether that the hunches about the competitive dynamic in a particular market segment or your place and competitive position there. And we have confirmed a number of things that I think we thought we’re true, but didn't have a conviction around. And when you have conviction around something, it's really it makes it much more powerful to be confident to go invest in it. And that – if that's the biggest thing that came out of our Q2 strategic plan for our teams, that's going to yield some great results in the future and there are a few of those. In particular and I've said this publicly and I will say it to you now, I think our distribution we have great opportunity there. And from the work that we've done and from the work that I've seen our team put together, I don't have any change in my view on that.

Okay, that's helpful. Thanks, just two other things. First is – this has been kind of choppy quarter and you talked about how some things have played out. Do you feel that through time the business can become more consistent or will it always be sort of a business that some pieces are doing well, some pieces aren’t, and it's rare to see it will hit on all cylinders. How do you think about your business becoming consistent on an ongoing basis?

Yes, it’s a fair question. I think that process is a good way. So, there’s two different pieces to that. There's the external piece, are we in markets that allow for some consistency and are we consistent in executing. And that's the way I think two of them. So my focus right now, I can’t do a lot in the short-term to change what markets we're in. So, I'm focused on helping ourselves internally be as consistent as we can. And that means it does have a market effect because you have to understand what's going on in your market. So you can react and have process to react. And that's what we're working on right now. Future stayed, of course, you want to look and say where are we advantaged in markets that will help us to be more consistent over time. I think generally if you’re going to be an industrial, you're going to see a cycle – business cycle to every business and you can – I'm not a person that sits here and says, hey you’re going to try to line up countercyclical business and the other thing, I mean it's – I think 2009 proved that when things go down, everything goes with. So I don't – I'm not trying to look at the world from that perspective, but yes there are certain ways of finding opportunity that allow you to be a little more consistent, but I would say I bifurcate the two.

Okay, that's helpful. Last topic is the CFO search. Can you give us perhaps an update on where you are? Do you anticipate having somebody in place by next quarter or rough kind of thoughts there?

Yes, sure. We have several strong candidates in the pipeline. The process is moving at the pace that I expected it would. I'm not going to put a due date on it because there's a dynamic that’s just not – that’s not worthwhile, that's a guess. So but the process is moving at the pace that I expected it.

Okay. Thank you good luck.

Thank you.

The next question is from Brian Sponheimer, Gabelli and Company. Please go ahead sir.

Hi, good morning, Dave. Good morning, Monica.

Hey, Brian.

Hey, Brian.

Maybe if I can ask the strategic question in a different way and I think that they were really well done so far. As you are thinking about how your timeline develops over the course of the next 6 months, 12 months, 18 months. What are the steps that that you think that you're really going to be able to put your footprint or your assumption right around on this business?

That's a good question, Brian. And none of the other ones weren’t, they’re all good questions, but this one I’ll answer. The biggest thing I can do is prioritize and then put focus on where we have best opportunities to make a difference. And some of that's going to be short-term. I mean there's – because of the markets we're in, there's a – you have to be nimble, you have to react to the world around you, you can't just ignore it. So as I look at the strategic opportunity – the whole purpose of going through the work that we've done over the past four months is to look at the world of opportunities that we have and then prioritize those and invest appropriately. And I think if you try to do it all, you'll fail. If you really focus on one or two things and you can do that in a variety of different ways, but if you really focus your energies and put the way to the organization behind one or two things that are really important, you can be very successful of that. And so, we're working through that right now. There is figuring out, what’s exactly of those things we’re going to do.

All right. And most of my other questions have been answered. Thank you so much.

Thank you.

We have a follow-on question from Adam Josephson from KeyBanc. Please go ahead sir.

Thanks, Dave and Monica. Dave, just one more on the economic stuff and then I have a couple of cash flow, balance sheet questions. Just one on the economic weakness you've experienced, have you been able to square what you've been seeing, what the recent pickup in the PMI and the ISM – PMI data over the past two or three months?

Yes, I’ll tell you that’s the one that's the most confusing to me, because – no, I don't know, but I think the way I would – the way I’d look at it in my view is it’s a – because of our exposure in certain commodity markets, I don't think that’s fully captured at times in the PMI. So, I think, if the PMI people spoke a lot to John Deere and AGCO, [indiscernible].

Right.

So I think that's part of it, but that's what's very challenging about seeing some of this coming as you feel like that data is showing inventories going down and other things. So, it's not a good answer, but I'll be honest with you and I don't know and I'm pretty much there.

No, I appreciate your honesty, Dave. Just a couple on cash flow balance sheet items, so you guided the CapEx for 2015 to 2018 and that’s obviously down from your previous guidance just presumably on account to be good volume and sales weakness you experienced. What do you think – so you’re guiding to D&A of 35 to 37 I'm assuming there's a few million of Scepter amortization in there, but there's still a huge gap between your CapEx this year and your D&A, how do you expect those two to converge over time?

Yes, so, I think it's – I have a different way of thinking about. I understand the math that you all do and there’s some rationale, but I think it’s very reasonable. But I think about capital spending very differently than perhaps that that method. There are two buckets of capital. So there is – you have your distinct physical plant that you have to take care of. We’re going to continue to do that. So, if our factories, our offices, our equipment, we’re going to maintain them to the standards that we need to maintain them to produce the product properly. So, if the roof is leaking, we’re going to fix the roof, things like that. So that capital spending profile isn’t going to change. I think we have very good factories. We have very good equipment and we’re going to continue to maintain to such. Where I think differently is on the growth side. And I don't want people to look at my view of capital spending and think that that's going to sign the growth, because it's not. I challenge people on where we spend our capital and its back to the comment I made to Brian before, first of all its focus. We're going to make sure we're investing in the best opportunities that we have and not one that we're not sure about. That’s first and foremost. Secondly, we're going to make sure we're doing within the value chain that we're doing the operations that add the most value and then we have the most expertise in. And if we don't have that, we're going to find somebody else to do it for us and that often reduces what you need. And then thirdly, when I think about a growth project, my methodology for how…

Fair enough. Thanks for that that response, Dave. And just a couple others, the free cash flow for the year, what is your expectation now?

I think it's going to be a little lower than what we had expected before. And part of that is that I'm still getting and we want to get our working capital to a normalized rate, a steady state, so we’re going improve off of that. And I think that's probably the biggest impact that we’ll see. So I would say given the market conditions and so forth we’ll probably be a little lower than last year, but that's – a big chunk of that is kind of one year readjustment…

Got it. And just two others, one on your leverage, your leverage is 3.1 times at the end of the quarter. I think you said or your predecessors have previously said you're more comfortable in the 2 to 2.5 range, if I'm not mistaken. Can you just tell us just how you're thinking about the current leverage ratio where you wanted to go? And how close you might be to any covenants?

Yes, Kevin, do you want to talk covenants here real quick just get back question off the table and then I’ll talk about the future.

The covenant threshold is 3.25 is the maximum. So the actual covenant calculation comes to 2.9. This calculation is more of just the balance sheet calculation, but the actual covenant calculation comes in 2.9.

Compared to the 3.25, Kevin, I mean.

Compared to the 3.1.

3.25 is the…

Right. And the comparable leverage right now is 2.9.

Right.

Right.

That’s right.

I do that calculation, it would be 2.9.

Right, okay. And Dave, in terms of where you're more comfortable longer term?

Right. So it's one of our priorities is to pay down some of the debt and so we're working on that. And I'm not uncomfortable where we are, but we want to pay down some of the debt.

And just lastly – thanks, Dave and Kevin. And just one last one in the working capital, can you just go into a little more detail Dave about the issue with the payables and having cut to deep previously and then experiencing the consequences of that now, just a little more on what you've experienced of late and why you think that happen?

I think its process related, Adam, and we're putting the processes in place to be sustainable over the longer term. And so, I'm a big you dig out the process in place and because that helps you to sustain and then you have a platform and you can look at that and say this is what we can do and now I can improve of that, because I can look at the process again and say where can I be better, where is my – where are my worse situations. And so, if the process isn't good, it’s really hard to tell where the problem is. I'm a big value string math person, in fact we've done a lot of – haven’t mentioned anything about lean activities, we’ve done a lot of lean type stuff and value stream mapping is really kind of a key element to that. And so that's the key here. So we've started – that allowed us now to look [indiscernible] the big impact we can have renegotiating terms and how do we go about doing that and so on and so forth. So that's what we're focused on doing here. And that I thought we've gotten through a bit of that. And in the first quarter, it wasn't quite what I thought. So, I think, we – and in some cases you start for convenience and this is another process thing is maybe we stayed a few people early now, and that’s not what we want to do either. So I think there'll be a little bit of a correction to that as we get through the year. And then we'll have a good stable base coming out of the year. And we don't see a large cap cash outflow in the first quarter anymore or as much. There's a bit of seasonality to the business, I can’t avoid that, but…

Sure. Now Dave I appreciate it. And I appreciate your candor and best of luck. Thank you.

Thanks, Adam.

Ladies and gentlemen, we’ve reached the end of the question-and-answer session. I'd like to turn the call back to Monica Vinay for closing remarks. Please go ahead ma'am.