Good morning. My name is Tiffany and I will be your conference operator today. At this time I would like to welcome everyone to the Myers Industries Inc. Third Quarter 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. [Operator Instructions] Thank you. Monica Vinay, you may begin your conference.

Thank you. Good morning and welcome to Myers Industries’ third quarter 2016 earnings call. I am Monica Vinay, Vice President of Investor Relations and Treasurer for Myers Industries. Joining me today are Dave Banyard, President and Chief Executive Officer; and Kevin Brackman, Vice President, Corporate Controller and Interim CFO. Earlier this morning, we issued a news release outlining the financial results for the third 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. For further information concerning these risks, uncertainties and other factors please visit the company’s periodic SEC filings or 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. I’m going to start on Page 3 with a summary of our Q3 results. Sales in the third quarter were in line with our expectations, down 6% to the prior year. That’s a result of the continued difficult capital spending environment that we are seeing in two key markets, our food and beverage market, and some [ph] in our auto aftermarket. Look, additional comments on that, the distribution segment was down more than that and some of that’s due to our sales initiative that, as I have said before, is still in the early innings. So we’re making some nice progress and I am going to go into a little bit more detail on that in a minute. On the gross margin side, we were down 230 basis points to 27%. That’s due to primarily two main reasons. One is the lower volume which is primarily in the distribution segment. Then in the material handling segment, we had unfavorable product mix and operational inefficiencies, and I am going to talk about that little bit in more detail later as well. On the SG&A, we made up a lot of that ground, with lower spending there of $6 million. Some of that was from some non-recurring expenses that we had in 2015 and then some of that was from reduced variable spend. End result is GAAP earnings per share of $0.01 versus last year of $0.02, I mean just in line [ph] from continuing operations of $0.04 versus $0.09 in 2015. The highlight of the quarter, I think, is our cash flow and you can see here we were – year to date were up $7 million in cash flow versus last year a deficit of $10.5 million, and really…

[Operator Instructions] Your first question comes from the line of Chris Manuel with Wells Fargo Securities.

Another exciting day. Hey, wanted to kind of get a sense around a few of the businesses where we are as we sit today. I know you're not ready to give out thoughts towards 2017 at this point but maybe if we can kind of think about what changes or how the trajectory changes as we move forward. Maybe if we kind of start with the distribution side. I know you put in a new sales model. I do appreciate it takes some time to kind of work through but you're now a couple quarters into that that we – does it continue to perhaps get worse before it gets better or are we close to an inflection point? You talked about some indicators getting better et cetera. How we think about that and then I kind of want to go through each of the businesses if we can.

Okay. Well I mean we're going to – let’s stick perhaps with the segment, look if you will, happy to talk a little bit about our markets. But let's talk about your question on distribution. First, let's talk about the market. There are a lot of mixed indicators as I highlighted before over the past couple of quarters in terms of the kinds of things that drive activity in this business. But I think as things have stacked up through the fall here, the predominant indicator in my view that bodes well for the future is miles driven. And that's continued to improve with gas prices low and I think that bodes well moving forward. I think the thing I would look for and I hate to say this because I'm not a big fan of reveling in the weather to make things happen. But I think that was one of the contributors to last year's – excuse me, this year's softness was we had a mild winter fairly dry summer, no incentive for people to change their tires. If we have a wetter winner or a colder winter that drives snow and so on and so forth which it looks like we will have, I think that's going to be a catalyst because people will be skidding and wanting to change a tire. So I think the combination of those two things, I mean the tires have to be getting more ball as you drive more on them. So I think those are good fundamentals for us moving forward. That's the market. When it comes to our own performance, if you think about how you go about a change like this, there's -- you have to go in stages. We have a very large sales force there. They've done…

That’s helpful and then if we can kind of perhaps talk to some of the other parts pieces -- the industrial, or however you want to think about that but as we look at the different piece, you have listed your consumer, vehicle, food, bev, industrial – two have been down over the course of the year. I know you talked about comps getting easier for the food and bev piece next year but directionally vehicle sales are – or that piece we’re kind of at a peak seemingly there or some of the other piece, I just got – I guess I want to get your thoughts as to how we progress from here forward for each of these.

Okay. Talk a little bit about, I highlighted earlier that within our consumer business we had some success this fall with the buying season, very happy with the performance there and the team. And we continue to work on commercial process and product development in that business and very excited with the progress that team's made and we're going to -- I think that bodes well for 2017 there. I think I agree with you that the vehicle portion of the business is reaching a top, I don't know where I'd call the peak on it to be honest with you. The RV market has surprised me how it continues to press on. I think that industry has done a superlative job of marketing and that they've continued to grow in the face of really what some would say as beyond the odds. But in the car side you're starting to see some weakness, Ford and Chrysler coming out down in the quarter and so forth. So really what drives us our model launches, it helps the more model launches that are going on. So I think there's some continued pace in the near term for that. But overall yes there's potential weakness there moving forward. On the food and beverage side as I highlighted, I think Brazil has stabilized. That's a good thing. And so the pace of growth I don't know that it's going to be a V shaped recovery down there but I think we're going to see some growth there. On the agriculture side I think that's a little harder road at the moment. I don't think there's -- and if you look at the performance of a lot of those equipment manufacturers, they're running into the same problems that we are which is really there's a cash flow at the farms is such that they just need the cash flow to service their debt and to continue to stay in business and not buy new equipment. So that's that is hurting us and I think that will continue to hurt us in the short term in the next couple of quarters.

And then the industrial side, I mean I know there's a lot of parts pieces in there.

Yes, I'll be honest with Chris that the industrial environment right now is -- I think it's a reflection of our economy. Industrial production has been flattened forever. We have some pops where things happen and then other parts of the business are down and it's just -- there's just no real -- I think the right word for it, there is no catalyst at least in North America where we play the most or any kind of big change in direction. Now one thing that I do see that is helpful is we start seeing some of the emerging economies have a little bit more positive news. I mean it's sort of -- I guess it is election day, so we can talk this way to reflect a little less worse sort of in some of the emerging markets and that obviously our economy serves them in many ways as an export economy and that should help. That's part of the drag we're seeing. But I mean commodities, I don't see a ton of -- there's not a ton of catalysts that are showing those markets changing and that is a big chunk of what we call industrial in the world. So it's hard to say that it's going to be anything different than what you're seeing here.

Okay. One last question and then I'll jump back in the queue. A couple things that I pulled out of your prepared remarks from earlier were not running the business for overhead absorption but rather manufacturing what you wanted, needed for select markets, introducing some lean techniques for the business. My interpretation of some of that is, is parts of those efforts can create spare capacity both from lean as you do it more efficiently and if you don't want to run or parts or piece of thing, how would we think about your appetite or your thoughts around if you create some capacity and particularly as we see volumes that have been trading, do you have areas that perhaps product line you want to get out of or restructure to get size correctly from a go forward basis? And again I do realize that you're still in the final stages of putting together refining your enterprise strategy but how should we think about what that opportunity your thoughts around that going forward?

Yeah that's a good question, Chris and I'll answer it this way. First of all, we're looking at all the options available as we go through this. And we're focused on those options from a strategic standpoint. So when you think about capacity it's what capacity do we need for the long term not just the short term, hey our performance isn't great in this quarter we want to change the game for a one quarter period. So that's how I look at those kinds of questions. I think in the past we've been a bit too all over the map everything, then capital on it and go for it. We're going to be more refined in that. The best wins we have as an enterprise that we have had in the past are where we are in a smaller niche market and provide significant value to our customers. Now unfortunately one of those is significantly down right now and that's affecting our results but it's a great example of the kind of value we can provide and structuring our operations to be able to do that well is how I want to think about things. And then in the near term if we have other products that we're selling, we're going to keep continuing to do that. But I think long term there is opportunity to think about things differently. But it’s hard to say today because I don't have anything tangible to tell you specifically. And so I'd rather not do that.

Your next question comes from the line of Adam Josephson with KeyBanc.

Dave, I’ve got a bunch of questions for you, and no particular order. You talked about the inflexibility that you're dealing with with respect to the company's operations and the fact that the company’s pursued lower margin business in years past to keep the plants running full. Do you think you had a good grasp of all these issues in the business when you took over?

I think that -- I will say this, I think some of that is I think culturally different than I expected. I'll be honest in terms of how flexible and our answer to these kinds of challenges that have come up in the third quarter is different than I would have thought. But it's also different to how I think that the company's prior methodology is different than mine. And so as I've dug in and seen some of this, when you lower the water level so to speak is the way to describe it when you're talking about these things, you see the rocks and I'm not sure we've been lowering the water level to the right depth in the past. And so we probably just didn’t know the rocks were there to use that analogy. And so it is different to think about running this business to generate cash and as that is the ultimate measure of success and we haven't thought that way before. And so you have to think about in the past, if you weren't thinking that way and you were thinking more about margin is the only measure of success, you're going to make different decisions about your capital. And so that's how we've always done it in the past and the extent of the challenge there is maybe a little bit more than I thought so it's going to take a little bit more time. But I think that everybody is starting to come and understand it you can see that in our working capital performance this quarter that people are getting it. It’s just that you can't implement these kind of tools overnight.

Sure. A few others again, just random order here. You talked about Brazil having stabilized. I'm sure you know your large beverage customer down there it just cut its sales guidance for the year on account of profound weakness in Brazil. Whereas you're saying Brazil’s stabilized and they are, I believe, a very large customer of yours. So can you help me understand that apparent disconnect?

Yes, I think that what was happening before was a result of overhang from the M&A activity and I mean I think they're – the management of their spending was basically cut to zero and there's a negative reaction at some point to that. And I think there's a steady state here that's different from what we've experienced. I mean we had in the first half of this year where we had no orders and that's not sustainable either. And so I think they've reached a different run rate now where yes, overall the business is down but we haven't been following what I would say a pure market based volume.

I see. So the stabilization in your business is not necessarily reflective of beer consumption?

No, and I think that I would characterize Brazil this way is that the political stability that occurred over the past several months has helped quite a bit. There's more optimism in the country, you can see it in the customers down there a couple of weeks ago and you can see it in the people and the customers that we deal with. Now that doesn't turn into volume immediately. There is some pent-up demand that we would -- that helped a bit here but I think generally speaking we had -- that our business down there this year has been really low and that's not the forward trajectory. So there is, call it, a easy -- call it just that things are right and are starting to move in the right direction. As I said I don't think this is not a V shaped recovery at the moment but then again I've been surprised by that before. Maybe it is but I don't see those indicators but I certainly don't see things going any worse at the moment.

Sure. Just one on your profit outlook. To the extent you are expecting your profit to be down year on year in 3Q on account of the weak volume. Are you expecting the same in 4Q compared to a year ago?

I think that what you're seeing is what you're going to get from us in terms of the -- this was on maybe the low end of what we had expected but this is the dynamic of where we are in the short term. Yes.

In other words, okay, profit’s down year on year. Okay. Back to CapEx for a second. Yeah you talked about just becoming more efficient with your capital spending, it seems somewhat ironic that you're calling out lower capital spending among your customers and you guys are doing the exact same thing. But what you're saying is it's not – you’re cutting your CapEx guidance, that’s not reflective of what they're doing. It's simply related to changes internally, is that right? And is CapEx equivalent to 2% of sales indeed sustainable for you given that I would think material handling is somewhat capital intensive?

So a couple questions in there. Let me go through one at a time. I think the dynamic that our customers are dealing with is different than ours. So ours is a strategic change into how we're going to manage this business and what we're focused on. So whereas at our customers it’s a reflection of shortage of cash. That's not the case for us, and that’s why we’re managing it this way and that's why I can sit here and say this is something that we're going to continue to sustain moving forward because we've managed the business focused on capital spending first in the past to solve our operating problems and we're not going to do that to the same extent moving forward. So that doesn't mean there aren't opportunities, and capital doesn't mean that our material handling business is not going to use 4000 ton presses, we're going to use these pieces of equipment and they need to be maintained and they need to be repaired and refurbished when necessary replaced and our tooling is expensive. All those things still happen but -- we're going to make sure we're using that -- the capital we have more efficiently and that is a process change, not add more capital change. And I think in the past when we've had these inefficiencies the answer has been to add more capital. I think you see that a bit in our -- take for example, our vehicle business we spent a lot of capital the end of last year to go into that business. And we've won a lot of good contracts in that and have some growth there. But I don't think we're seeing the profitability that one would expect. And so I don't know that that was the wisest use of our capital, I will say that. It is what it is, we have it and it’s working but I think that we're going to be more judicious about how we use that in the future and focus more on the process.

Sure. Thanks and just two others. I know you talked about the macro earlier. The PMIs have picked up a bit lately for the U.S. They are in that I think 51 to 53-ish range now. Does that sound about right to you or what do you think -- does it feel lower than that to you just based on your commentary earlier that it just seems fundamentally flattish?

Well, I mean I don't know 51.5 is flat or not but or up – but yes, obviously a directional change from August. I think industrial has been performing at a good pace with the market. If you look at our – the best proxies for us are some of the bigger industrial distributors that they cross broad swap and they've had choppy results. Industrial production is not moving. So these are fluctuations up and down based on whether some more houses were built or whether it's some oil and gas activity has picked up. There are a little things that are changing the game in the short term but I think we're kind of on this flat trajectory that I don't see a major catalyst. Three or four years ago major catalysts around oil and gas, major catalysts around agriculture a little bit further back than that, emerging market economies really being in full steam with building a couple of years before that. So I don't see where that catalyst is today other than we're just kind of moving along at a decent pace. Automotive is probably -- if you want anything that's probably the biggest catalyst of any of this stuff. So it's probably getting some lift from the same place. We're getting lift elsewhere. Overall when you take the full basket of what's the industrial economy in the United States right now I'd say we're still moving along at a flat pace. I think at some point here in the near future you get past that magical five quarter downswing where you can start growing because you've got a little baseline.

Thanks. I mean just one last one, I think Chris asked briefly earlier about next year. But is there anything obvious to you in terms of the end markets or your internal improvements that would lead you to think that your profits would be up notably next year based on what you know today?

I am not going to comment on next year's profit at all. I think what I'll say about next year is I'll reiterate what I said a little earlier is that I think the fundamentals of the auto aftermarket business for us look good. We do have to execute and frankly that's on us and you can see I would be the first to say that we've had some gaps in execution this year. But that's the one market that I think has opportunity and as I highlighted in my strategic discussion, I think we have a very good value proposition there in a number of places. So I like what we're doing there and I like the fundamentals of that market and it's a great cash generator for us and has potential for growth. So there are a number of parts of that business that we really like and that's why we're spending a lot of time and effort and frankly some money on getting that business set up right. The other ones, it's too early to really talk here.

[Operator Instructions] Your next question comes from the line of Matthew Paige with Gabelli & Company.

I guess first looking at the RV market. There has been a mix shift in that industry for entry level products. Hoping you could speak to the impact to Myers at least based upon the products that you sell on --?

There's been some consolidation too and I think that the fortunate part is that in the consolidation they still manage those businesses independently. And one of the ones that was bought is one of the key players in that lower end trailerable business. We are agnostic and honestly deliver equal value across all ranges of the RV market, we're really a market leader there and so we serve those customers with our products in a variety of different ways. Some of the bigger models we provide different products too but I'd say we take advantage regardless of the mix in that business.

Right and moving to the food and beverage market particularly in South America. You noted that it started to stabilize. So is this a good time to make an acquisition in that space and if so are there opportunities that present themselves?

It's probably a good time to make acquisitions in Brazil, absolutely. I think if that's an area of interest, I don't know that we need to make any acquisitions down there to be successful.

Your next question comes from line of Chris Manuel with Wells Fargo Securities.

Thanks for taking some more questions from me. Actually I have four last things I wanted to ask but I'll try to be quick with them. The first, you did reallocate some costs as you mentioned earlier, it looks to be about $1.5 million, $2 million a quarter give or take. Can you help us with – how would we think about modeling that going forward? What is the allocation that gets moved or how we think about that?

Yes, Chris, this is Kevin. The total allocation was about $2 million in total. And about three quarters of that would go to material handling.

And is that roughly going to be the same each quarter going forward?

Yes, this was a catch up for the entire year of 2016. $2 million should be close to an annual number.

Okay, that's helpful. Maybe Kevin, I have another one for you here, on working capital I think you're to date, you're still in the hole or used up almost $14 million year to date although I appreciate you’re ahead of pace last year. What do you think the opportunity or how should we think about working capital in 2016 given what you're doing it looks like some of the payables being moved out further et cetera but how should we think about full year this year as the working capital opportunity?

Yes, we finished the third quarter at about 9% of revenue and I would estimate that that's where we will end the year probably between 8% and 10% of revenue.

Is that a good long term rate?

Yes, I think that's a good long term rate. Last year our free cash flow is down this year or will be down this year because last year we finished the year at about 3.5% of revenue. But we think long term 8% to 10% is a good rate for working capital.

And then Dave, kind of two questions for you. One is, in your prepared remarks earlier you mentioned strategic gap in operation. Can you maybe help -- what does that mean?

Sure. It's the lean thinking method of looking at each of our operations, this is not something that we are -- that we have a tremendous amount of depth in. And that's across the board and when I originally got here, Alex asked me a question or Adam asked me a question about what surprised me. I thought that there were only pockets of where that was -- where we had gaps there and say it's more broad than that in terms of where we think in terms of doing things in a process or in a value stream map type mentality and then individual process improvements within that. So that's an area that we're focused on. We're using consultants right now, I'd rather that talent be in-house. I'm very glad to have a VP of HR on board now that can help me with that and help us with that rather. And so that's what I mean when I say that. That’s a strategic imperative for us to be better at that.

Okay, that's helpful. And last question. You mentioned in Scepter getting some pretty sizable business wins and improving share. And I guess help – maybe if you don't mind use that as an example, walk us through what you've done there, how that looks? I do think you’ve had some new good products you were launching there, it was a new spout et cetera. But is that driven by new products and piece introductions, is that driven simply by pricing of product better in a market? How do you win business, keep it sustainably and do it in a profitable manner?

Right. Well it's a combination of all those things that you mentioned. But it starts with -- we did a lot of marketing work earlier on in the year and that helped us really understand the key drivers of value in that business. So when you understand that better, you can really go in and talk to the customer about what they want, what they need and how you can help them be successful. And I think we demonstrated that a bit with some of our customers this year. We -- as I highlighted in the past we didn't launch products on time and frankly as we looked at what we were trying to accomplish with those it was a bit more ad hoc than well thought out. And so this year we put our minds to being well thought out as far as listening to the customer and understanding their needs and presenting them with the proper package of products and services. And that went over very well. And then next steps are how do we innovate and how do we continue to improve on that and that's what we're doing today. So it was a much more well thought out commercial strategy than a, I’d say, a rush in to show the new.

Okay, that's helpful. One last question I forgot that I wanted to ask was, how would you think about or how would we characterize new business commercialization at one point in time and this is historically two, three, four, five years ago, it was a big effort to get new patents, launch new business, try to go at things a little differently. Where are you at today, is that still the focus, do you think about new product development or how would I think about as a portion of a pipeline, I guess what the thistles [ph] being that new products tend to be more profitable or create a new sustainable edge?

Right. Well I think the Scepter example that we were just talking about is a perfect example of the right way to do it and how we're going to do it moving forward because commercial strategy product is an element of it. It's not all of it. And so Scepter is a good example, and Myers tire supply is another great example where you can do all the great engineering you want and launch a great product. But if you haven't thought out whether that's exactly what the customer wants or that you have the right service level with that customer, then you're not going to have much success. And so my goal this year has been to really get the teams to think that way which starts with marketing and understanding what the needs are in the market. Some of that is understanding and maybe taking a little chip off of your ego which we all have at some point that says we're the best and saying boy, somebody else might have beaten us here, what are they doing and why are they beating us and doing a full analysis like that first and then going in with a commercial strategy that says, here's what I have today to sell you. And here's what's coming down the road that might be an innovation that solves the kind of problems that I think as I've highlighted on here, the safety type problems, efficiency type problems. These are things that our customers want us to help solve them for them and if we can understand that better we'll put the right products and the hands of our sales team and actually value sell that. I don't think we've never really focused on tools like value selling and that sort of thing. So it's you can have all the great product development that you want but if you can't sell it well, if you don't have a good strategy of where to target it, it doesn't matter. And so we've had to build some muscle in that regard this year and it continues, it's not yet done. We're certainly not done.

Your next question comes from the line of Adam Josephson with KeyBanc.

Dave, hi thanks for taking my follow up. I just had one more in Brazil. This is – I appreciate this is not an easy question to answer. But if the tone is getting better there generally speaking, can you help me understand why your largest customer and one of the world's largest companies would have just reduced its revenue outlook for this full year because of Brazil, because it was weaker than expected in the third quarter, presumably that would have reflected whatever increased political stability there is now right?

I honestly can't answer that question. I don't know, Adam. So appreciate the question and I have sold that as well. And frankly I was a little surprised by it but I think it comes back to it's all relative. So what were expectations? Are expectations have been very low. And so I'm happy to see some activity. As I said I don't think the Brazilian economy is coming raging back but you're seeing better activity than the darkest days which were a couple of quarters ago. And Adam, one last piece on that, I am sorry, I will say, I mean this is a fairly small part of our business. So while it's important that we understand that market really our focus there has been on really making sure we're running that operation efficiently and serving the customers that we do have there. So it's not a huge portion of our business at this point. End of Q&A

There are no further questions in queue at this time. I’ll turn the conference back over to our presenters.

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

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