Myers Industries, Inc. (MYE) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Christina [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the Myers Industries First Quarter 2017 Earnings Conference 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, VP of Investors Relations and Treasurer, you may begin your conference call.

Thank you. Good morning. Welcome to Myers Industries’ first quarter 2017 earnings call. Joining me today are Dave Banyard, President and Chief Executive Officer; Matteo Anversa, Executive Vice President, Chief Financial Officer and Corporate Secretary and Kevin Brackman, Chief Accounting Officer. Earlier this morning, we issued a news release outlining the financial results for the first quarter of 2017. 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. 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 is set forth in the company’s periodic SEC filings and maybe found in the company’s 10-K filing. I’m now pleased to turn the call over to Dave Banyard.

Thanks, Monica, and thank you everyone for joining us today. Let’s start on Slide 3 with an overview of our first quarter performance. We had a solid operating quarter in line with the earnings that we expected, we really generated strong cash flow in the first quarter and Matteo is going to go into some detail on that, but I want to highlight that because it indicates the strategy that we’re executing and the focus that we’re putting on that. We also had a great quarter executing on our niche market strategy. As you can see here some nice growth in a couple of our key end markets with some share gains in the automotive segment. Great growth at Scepter and then solid growth in our RV business and really this is a result of the cross-functional teams that we have focused on these niches and the execution of their delivering course. We also made some solid progress on our operational realignment and we’re on track to deliver the savings that we’ve outlined in our last earnings call. Also want to highlight again though that it’s not just about savings here but it’s also we’re fundamentally changing how we operate the business here and we made great progress on that in the quarter. So our revenue was down for two main reasons as expected, the agriculture market continues to be difficult for us and we did have a tough comp in the first quarter from last year, we saw a continued decline in that market but that was as expected. We did some weakness in the auto aftermarket, was slightly worse than expected however it was in line with a lot of the indicators that we look at in the market and other participants in the market that we take a look at there. And some of that of course was also because of continued softness in the equipment in the retread products that we sell through that market. In addition, we managed to see some raw material cost increases and we were going to continue to manage through that price and Matteo will go into some detail on that. We’re executing well on our strategic initiatives that we outlined last quarter. Now I’m turning it over to Matteo to go through the specifics of the quarter.

Thanks, Dave and good morning, everyone. If we turn to Slide 4 of the presentation I will walk you through an overview of our first quarter 2017 performance on a GAAP basis and as always all the numbers in the presentation reflect continuing operations. Starting from the left, net sales declined 6.3% to $141.7 million compared to $151.2 million in the first quarter, 2016. Excluding the impact of foreign exchange the decreasing sales year-over-year was 7.2%. The decline was primarily due to the continued weakness in our material handling segment agricultural end market and as Dave mentioned, softer than expected demand in the auto aftermarket in our distribution segment. Our gross profit margin declined 230 basis points year-over-year due to lower sales volume, higher raw material cost and higher one-time cost. In the first quarter we recorded one-time restructuring cost of approximately $1 million mostly due to cost incurred for the strategic realignment in our material handling segment that we announced in the last earnings call. GAAP diluted earnings per share was $0.10 compared to a loss of $0.11 in 2016 in the first quarter, the GAAP diluted earnings per share in 2016 was negatively impacted as you may recall by $8.5 million of impairment charges in Brazil and approximately $2 million of severance related cost. Now if we turn to Slide 5, I will provide you an overview of the key variances on an adjusted basis. Adjusted gross profit margin was 30.4% in Q1, compared to 31.9% in the last year a decline of 150 basis points. The reduction in gross margin compared to last year was due mostly to lower sales volume, some operational efficiencies primarily related to the decrease in sales volume and higher raw material cost which as Dave mentioned we expect to begin to recover with price increases starting in the second quarter. Adjusted SG&A was $35 million compared to $36.5 million of last year. The year-over-year decline of $1.5 million was primarily the result of lower compensation cost thanks to the headcount reductions that we executed throughout 2016. As a result, adjusted operating income declined by $3.6 million or 31% most of the decline year-over-year was driven by the reduction in sales, the higher raw material cost and the manufacturing efficiencies and these effects were partially offset by cost reductions. Adjusted diluted earnings per share was $0.13 compared to $0.21 is 2016. If we turn to Slide 6. Slide 6 provides some details on the performance by the two segments. If we start with material handling on the left side of the page, material handling sales declined by 5.4%, the reduction in sales was driven primarily by the anticipated decline in the agricultural end market which continues to experience some softness, however the decline in agricultural sales was partially offset by increases in automotive, Brazil food and beverage and Scepter. Adjusted operating income in the segment decreased by $3.2 million the reduction was primarily the results of lower sales volume, higher raw material costs which as I mentioned before we expect to offset with price increases going forward and some manufacturing efficiencies offset partially by SG&A savings. Moving to the right side of the page, distribution. Sales declined by 8.6% the year-over-year decline was primarily due to lower equipment and retread sales, as well as softer than expected demand in the auto [ph] aftermarket. However the team did a nice job in driving positive mix of supplies versus equipment during the quarter which benefited our operating margin. Adjusted operating income in the segment declined by $1 million the reduction was primarily the result of lower sales partially offset by the positive mix that I mentioned before. Turning to Slide 7, will give an overview of our balance sheet and cash performance for the quarter. We’re very pleased with the cash performance in the first quarter. As you can see from the left side of the page, we reduced our debt at the end of the first quarter by $10 million compared to the end of December of last year. As our result our leverage ratio remains stable at 2.9 in spite of the lower EBITDA. We were able to reduce debt by taking actions to further stabilize our working capital and grow our cash flow. Specifically, we decreased our accounts receivable past due balances by $7 million between December 16 and March 17 and we increased our inventory turnover at the end of the quarter to 7.7 times. As you can see from the chart at the bottom left side of the page, working capital as a percent of sales in Q1 was 7.8% which is in line and consistent with our performance at the end of quarter of 2016 and below our target of 9%. Additionally, lower capital spending of $7 million partially due to timing also contributed to the increase in cash flow. As a result, we generated very strong free cash flow of $12.6 million compared to use of cash of $18.5 million in the first quarter of 2016. Our solid free cash flow performance in Q1, 2017 drove our trailing 12 months of free cash flow up to $52 million corresponding to 9.5% of sales. Now this is probably a bit high due to the one-time benefits from the past due collections. It demonstrates what we can achieve by focusing on this key metric, so we’re really pleased with the job that the team did on cash. And with that, I’m going to turn the call back to Dave to discuss our outlook for ‘17 and provide a strategic update.

Great, thanks Matteo. I’m on Slide 8. Starting at the top, we’re holding our prior outlook which is for full year revenue to be flat, obviously given our revenue performance in the first quarter that’s going to require growth in the back part of the year and really, what I want to highlight here is that in the first quarter, all of our businesses with the exception of Ag business and the auto aftermarket grew. So we’re off to a good start there and you can see why in the middle of the bullets here because of our strategic orientation towards niche markets and we’re investing in new product development, we’re going after adjacent markets for share gains. We’re putting in the real tools that are needed to blocking and tackling in our auto aftermarket business, to really accelerate our commercial execution. So, we’re taking the steps needed strategically to improve our ability to gain share and we’re also seeing some market lift that we’ll talk about here in a second. As I’ve highlighted earlier, our operating realignment is on track. We started moving equipment, we’re finalizing our outsourcing initiatives and really, we’re making the progress exactly as we thought we would through the first quarter and lastly, we’re using our cash to pay down debt and fund a lot of these strategic initiatives. Over on the right, you have our five strategic end markets and I want to talk a little bit about the conditions in each of those and how we’re taking advantage in some cases as I said, we’re working to take share and in other cases, we’re riding a favorable market dynamics. I’ll start with the top, the consumer and vehicle market is a combination. We’re seeing some strong market indicators there particularly in the vehicle side of things both with automotive product launches as well as in the RV and marine segments. However, we’re also taking share there, I mean we had 30% growth in our automotive business this past quarter and that was from winning some new business as well as from some market growth there. In the food and beverage, it continues to be a challenge particularly in Ag, where we’re seeing some improvement in our Brazil operations on the beverage side. What I’ll say about the Ag market is that we’re starting to see the indicators that market is bottomed out. We did have a very strong first quarter last year and then things really dropped off significant in the second part of the year, we don’t see that happening this year it’s been more of a steady pace of business and as the M&A works itself through the system in those customers as well as the year progresses with farm income, we expect 2018 to be a better year. So we still expect that market to be down this year because it is a - farm incomes were down significantly again last year, but we see that market is now starting to stabilize. On the industrial side, the market is doing well and we saw a very good indicators of that within our businesses in the first quarter and then the auto aftermarket as I highlighted, the market was soft in the first quarter. We are expecting to grow share there as a way of growing, so it’s going to be really on execution as we see how that market continues to develop through the year. So overall in summary, we’re very pleased with the performance particularly with cash flow and earnings in the quarter and we expect to have flat sales throughout the year which we expect to be some continued improvement as we go. With that, I’ll turn it back over for any questions.

[Operator Instructions] your first question comes from Chris Manuel from Wells Fargo Securities. Your line is open.

Just a couple questions for you. If I could start with the - and you mentioned CapEx would pick up a little bit, but I think you spent about $500,000 in the quarter that’s probably barely, keeping the roofs [ph] patched [ph] and that kind of stuff. What type of projects do you have kind of slide it up that you want to do, how are you feeling about new product launches into that nature of things you’re going to need to spend capital on?

Chris, this is Matteo. The way we think about is, obviously CapEx spend will be a little choppy this year. You will see that we’ll start to increase some cap expenditures starting off in the second quarter and we’re really confirming the same numbers that we gave you in the March call, so we’re expecting to spend between $10 million and $12 million of CapEx throughout the year. And to answer your second part of the question I would say that a good chunk of this amount is really around growth, so you will see this coming in the upcoming quarters.

Okay that’s helpful. As you look through some of the start and it just reminded me, I think we still have one more quarter of Ag that’s when you saw the downturn last year in the seed box business, is that accurate? And then you should beginning [ph] anniversary or did that - but when does that occur and remind us again that’s been - how to say this, kind of mid to upper single digit EBIT tip per quarter, does that feel right?

Yes, I think you said it correctly. Chris. I would say that, the second quarter is going to be the last one where we have a tough comp on Ag, we’re confirming the same as they said same outlook for revenue for the year so you’ll see first half which is going to be slightly down and then the pickup coming in the second half.

The other thing I would say, Chris is, we’ve - talking to these customers there was a bit of a thought process last year that they were returning to more normal pattern and once those boxes were delivered I think that customer realized that there was a bit of over optimism there in the year and they definitely did not have that same level of optimism for this year, which I think is prudent and couple that with the fact that, there is some very large and couple that with the fact that, there is some very large combinations happening in our customer base and that with a big distraction for a lot of them in the second half of last year, not all of that is done, but we all know that when you have two very large organizations combining and we have that happening in a couple of the customers not just one, that their artificial controls are slapped in place that changed the game in a short-term. So fundamentally, we still have very good position in this market and we feel that, the customers now have a bit more of a handle on the operating environment that they’re in and so we’re seeing what I’d say is normalized demand which we haven’t seen in a while and so that’s a good place to start planning from, so we’re optimistic from that standpoint. However all that being said, there is not a lot of fundamental strength in the AG market this year but the indicators that are saying they are things coming back as we extend out here, through the year.

Well maybe it would be helpful, I know a lot of weakness was geared specifically to the seed box piece, well there was some changes, adjustments and waiting when to handle fleet and things of that nature. If we were to try to isolate that aside, how is the rest of the food and bev business, the big boxes for paste [ph] other things, have those exhibited similar characteristics or are those still kind of flattish or seeing modest improvements. I mean is it really isolated in one piece or is it really wholesale across that segment.

Well, so the answer to your question is, it depends and that’s, it depends on the specific niche market that you’re talking about, so the tomato crop is an example which is where we play the largest, also had a fairly large bumper [ph] crop over the past few years and that increased levels of inventory and decrease the need for more packaging, so kind of perfect storm there and I think those, we’re not only trying to improve our position within that market, but we’re also looking at alternative segments, so that we’d use our packaging in that, we’ve made a progress on that. So we’re not sitting around waiting for the market to come back in Ag or food, we’re looking for opportunities for growth outside of market growth, but I think a lot of these things will come together around the same time. On the beverage side, we’re seeing a rebound in our Brazil business which is somewhat counter to what the customers are seeing, but part of that to shift from can to bottle and that’s helping us, though we’re seeing robust demand there and that’s helping our Brazil operation.

Okay, one last question and then I’ll turn it over but Matteo you’ve targeted I think earlier in the slide 9% as a portion of sales as working capital, it looks like you’re a little over percent or so, little over percent below that, is that something that you might need to replenish a little more back into working capital or get the levels you wanted or are you comfortable here that something sub-8% is something you can live with.

Sure. Chris what I would say is, we’re [ph] distressed what I mentioned in the prior remarks. We had about $7 million of past due collections happening in the quarter, we’re very pleased with the work that the team did, but we also have to recognize that this is not something that we can repeat, we don’t have enough past due to collect. So I think when you think about the working capital percent I think this clearly impacted the percentage, so I will not change the overall long-term target compared to what we gave you back in the March call.

I will say something too about this Chris, if you don’t mind. I think what it highlights, first of all I’ll put it to you this way if we’re consistently better than our target we’ll improve on our - we’ll change our target. So we’re not going to set a little bar, everything. However, if you remember from our last call this target was set to make sure we’re not stretching ourselves in too many different directions and driving the wrong behavior, we want to make sure that people are focused on the critical and most difficult thing that we really want to improve. I think we’re making some tremendous progress on working capital and you’re seeing that in our numbers and that’s a testament to the focus and the operating efficiencies that we’re driving out in the field. Overtime, if we’re continuing to operate at this more improved level we’ll set that as a new goal, that’s the culture we have here. But I think we’re pleased with the results but there may be situations. Particularly if you think about it as well, we’re doing some restructuring here we probably need to invest in some inventory to make sure there is no customer impact in machinery [indiscernible] or things like that. So there’s going to be some choppiness but we’re going to try to keep it at under the goal.

Okay, thank you guys. I’ve few more questions but I’ll get back in the queue.

Your next question comes from Adam Josephson from KeyBanc. Your line is open.

Dave you mentioned the industrial market is doing well, you saw some good indicators of that in the first quarter. Can you just elaborate on that and have you seen a notable improvement there. I know you boosted your outlook for industrial for the year and I’m trying to understand precisely what has changed?

Sure. Well I think, one of the big - there are couple of indicators here commodity prices are coming up and they’re sticking so in some cases resin did not, but some of the other commodities steel and rubber and so forth, inventories which were peaking a year ago are - have been coming down steadily those are things that I look out for what I’d say short-term indicators. We’re also seeing our ability to go out and get price and that helps and so those are comps. I don’t think this doesn’t feel like some asset [ph] v-shaped recovery here, but the industrial markets have clearly been in a slow period for the past 18 months to two years and there is signs of life there. Now the next trick in my book is to look for CapEx and when we start seeing more CapEx out there in the industrial world that’s when I think there will be a full on recovery because that sort of lags, if you will, to get by with what you have mindset. So looking for the larger industrial players to start spending bigger chunks of money on CapEx which I think they will at some point, so that’s how I look at it. So there’s, I’d say there’s short-term favorable indicators I’d say the counter indicators is interest rates and that goes again and that could potentially slow things, but I think money is still pretty cheap, so I’m optimistic.

Just to be clear, have you seen any signs of increasing CapEx on the part of your customers as you have.

Well we’re seeing it in as much, if you look at some of the markets we’re in, vehicle, auto despite the fact that we’re seeing kind of consumer behavior around auto slowdown, there’s still a lot of investment in a new model launches and that helps us and that requires CapEx. Certainly within our industrial distribution businesses we’ve seen good live over the past or five months and that generally comes from companies investing in their factory and equipment. So that’s where we’re seeing it, we don’t sell capital equipment so it’s not, with the exception of our auto aftermarket which has not been good, but in the industrial space I rely on our channel and the channel seemed to be doing pretty well at the moment.

And just one last related question to that, you talked about commodity prices going up and you indicated resin starting to rollover, copper, iron ore, oil all these commodities have rolled over in recent weeks does that, is that a sign to you of anything or not necessarily?

I think you got to, you got to let things play out longer than a shorter period of time. It’s kind of - I look at, to me price in the market is helpful, how sticky is the price that you put out there, are people willing to accept it based on what they’re seeing as well, helps. But it’s a weird environment, you saw consumer spending do pretty well last year and that’s I’d say tapered off, if you will and that’s part of why we’re seeing some weakness in our auto aftermarket, so you kind of have these back and forths with industrial and consumer both of which are the life blood of our economy, so I can’t give you an exact number. This is not some 2010, 2011 rocket ride here, but I think it’s.

Right, no thank you for that clarification. On the auto aftermarket is situation, why are people not replacing their tires just frequently, I just in an improving economy or at least the supposedly improving economy would think that, that wouldn’t be a problem.

I agree and to be honest, it’s a little bit of mystery. Part of it, long-term. I mean the long-term fundamentals are tires are better I will say that, so through this cycle there is a probably a little bit of more of lag than we’ve seen in the past there are more new cars on the road, so you probably don’t need to change your tires for the first couple of years and so there is a bit of that, there are a lot of short-term things that we could debate weather, etc. The weather does impact things in a short period of time I would look at some point for a rebound on that because its bit so. The short answer is, there is some, I think consumers are prioritizing by spending elsewhere. Tires have become I think a bit more over the past five years more of a fixes, fail rather than a someone that your tire store convincing to do it pre-emptively, so that - all those things combined are making it little bit difficult, but I think the fundamentals that we drive it are still strong. Miles driven - gas prices have come up, but not to the point where it would convince somebody to stop driving. So it’s still a mixed bag, I don’t have a specific answer to it, but it’s - we’re certainly keeping our eyes closely on it. The indicators that we monitor and the peers that we look all have the same challenge in the first quarter and so.

Right, no I appreciate that. Just one more on the sales side, Dave. Your outlook for consumer and vehicles up low single digits, how much of that is market growth versus share gains?

It’s a little bit of both. So we did some really nice work that you saw - the results of what you saw in the first quarter at gaining share in our consumer businesses and the vehicle is a combination. I mean the vehicle market, particularly the recreational vehicles if you include marine in that, the boats and so forth are really strong and I think that’s partly that maybe where some of the tire money is going, but it’s also a function [indiscernible] of the population. As people retiring and buying RVs, the RV Association has done a wonderful job of promoting that business. So those markets are strong, but we also feel with our niche market focus and these teams that we have organized that we’re in position to grab here where we can.

Thanks Dave and just one of the margin side, just longer term, you rolled out your strategy couple months ago, can you just remind me. You’re obviously adjusting to a lower sales environment and your CapEx reflects that and you’ve obviously got the restructuring that you’re doing this year. can you just, refresh our memory as to precisely what it is you’re doing to adjust to this new sales environment and specifically how that affects the capital that you’re spending?

Sure. Let bifurcate things here. We would not do this any differently, if we were growing fast or if we had a retraction like we’ve had for the past several quarters. So the strategy is, one that works both in the growth environment and in fact it’s designed to foster more of the growth environment to be honest with you and really, what it’s doing, is it’s reducing the complexity and when you reduce complexity on the scale that we’re doing, you can take out a huge amount of cost. Complexity always has a tremendous amount of cost, both on the capital side as well as on the people side, so that’s what we’re doing. So when you think about why we can spend less capital, I think the first quarter is not a normal view of that as Matteo highlighted there is going to be some choppiness through our capital spend because some of the pieces or big chunks and they come and go. But when you can manufacture with less complexity you don’t need as much capital and so you don’t need as much capital, you’re not going to spend at the same levels that you had in the past and we have a lot of new machinery that helps, but we’re also looking at how we use our machinery differently and using partners in letting them the capital investment and letting them handle some of the complexity and they’ll charge us for that. But we feel that arbitrage is in our favor at this point and generally it is and so we can focus on what we really do well and what nobody else can do well and we let people who are great at higher volume or other types of things, do that well and that, sort of naturally allow people, the efficiency equilibrium is where everybody is doing, what they do really well and you make the most money when you do it that way.

Thanks and just one clarification. Can you just give me one example of reducing the complexity just so we can put a little meat on the bone?

Sure. We have two factories that have, that are full to the gills [ph] with machinery and we make a broad array of different products that requires a tremendous level of what I’d call indirect support to maintain, so you need to maintain the equipment, you need to changeovers, you need to maintain moulds and so on and so forth. We don’t necessarily make money on everything that we’re doing in each of those situations and so when you focus on the niche and focus on where you’re really good and where you’re driving the most economic value in your business you’re going to find pieces that don’t fit that and you either get rid of them or in the case of what we’re doing, you find someone that can do them better and that’s - so you take a whole product line and you give it to a supplier and say, manufacture this for us and I realize you have to make a margin, but - you’re not a people that we’re assigned to running that product line internally is ends up being much higher than the number of people that the supplier needs to do it because they’re just, they operate differently. And so rather than try to operate differently internally we’re finding people that operate differently already and let them do that piece of work for us, so there were going to be product lines that are manufactured by someone else, they have our design, our features and benefits, still like the product line, it serves customers [indiscernible] ancillary product or as the name product and we focus on the things that are unique to us, that we do well.

Thanks a lot, Dave. Appreciated.

Your next question comes from Chris McGinnis from Sidoti & Company. Your line is open.

Can you just maybe quickly, you know you talked about investment and product development. Can you just maybe talk a little bit how about, how long that take to come to market and maybe what you’re working on?

Sure. Good question, Chris. The answer is, it depends. Each of our niche areas is different, some of them are have a time associated with the market, so in other words some of our businesses require a product to be launched a certain period because of the buying cycle of the customer for example, in our consumer business in the gas can business there is a load in that’s going on right now for the spring season it’s well underway I should say, if you haven’t launched a product by the fall you’re not going to make that. As oppose to and agriculture has similar type of dynamics, so there is some seasonality where you have to hit a particular season to get it there. In other businesses, we’re going to be, in some of those cases you’re making brand new products, in some cases you’re making I’d say tweaks or improvements, improved performance or highlighting a particular product parameter that the customer has highlighted for you, that they’d like to see improvement on. So in those cases it’s going to be a quicker cycle in a brand new category it’s going to be a longer cycle. So there is a wide variety of different things we’re focused on. And I will say, we’re also focused on using the existing products that we have penetrate further in different market and so that’s, they both go hand in hand, if you will. Sometimes it feels like a new product launch when you’re taking an existing product into a new segment but it’s really the products already there, so it’s a lot quicker time to market, if you will.

Okay and then secondly, can you just talk a little bit on the sourcing mainly such a big initiatives. How comfortable you feel with, how strong you felt about it last quarter when you introduced it [technical difficulty]? [Indiscernible] how long you’re with completing I guess most of the sourcing initiatives?

Sure it’s the first thing that had to happen in the order of things, we had to be comfortable that we had a supply base that could handle the works that we’re talking about. So that, it’s well underway and we’re producing to suppliers today.

Great. Thank you very much.

[Operator Instructions] your next question comes from Chris Manuel from Wells Fargo Bank Securities. Your line is open.

I wanted to come back to the distribution piece for a second. I mean I know you said you just paid this to be a lift over the balance of the year, but you’ve been running down a bit thus far. Can you talk a little bit about where you’re in the process of re-training, re-hiring, making adjustments through the sales force, through the system and are there some specific end niches or pieces that you think, you’re going to turn this, I guess presumably, [indiscernible] positive or the next couple of quarters, is this, we might began to see some traction on 2Q or is this something that’s 3Q, 4Q event. I mean just trying to get a sense of the short-term trajectory here.

Yes, I think I would - given the market dynamics I would talk second half on this business for an improvement, if you will on the top line. Where we are in the cycle is, we have done a great job of recruiting so we’re past the heavy lifting on that, there is still always I think this is kind of business where you’re always going to have some churn and so we’re going to be in constant state of working on, improving our talent within the organization, that never stops in the cycle of things but the big heavy lifting on that. To put some perspective on this, we’ve had more than a third of the sales reps in the organization turnover in the past 18 months and almost half of the sales leadership turnover as well. So it’s been and - a lot of that is by performance, so it’s a hard exercise to go through and we’ve gotten through the heavy part of that. We’re deep into the tool upgrades and the training portion, we just spent a tremendous amount of time with the fields team as well as the leadership team over the past several months in terms of training and we’re continuing to rollout improvements in the tools that we provide to our sales force, our methodology is to test the tool in a couple of key sales regions, make sure it works, make sure we understand what the kinks are and work those out before we roll it out broadly. And then once we have it, to really hit it hard and roll it out broadly across the organization and that’s in process and these are technology upgrades. I mean this is a business that has been underinvested in, so you want to talk about capital investment, there is some that goes with this, it’s very small in the big scheme of things, but we have underinvested in this business from the tools and training capability standpoint and we’re rectifying that now. Unfortunately that just takes some time, you see it in the performance of the new reps. They’re hungry for information, they’re hungry for tools, they’re excited to get out and go sell, I’ve interacted with a number of them recently through our training process and they’re excited about what we’re doing but it still just takes time. I mean we sell 20,000 SKUs it’s hard to get a handle on that. So we’re broiling [ph] it down in a smaller chunks for the new folks and what’s amazing, when you do it and you really go after it in this fashion the top performers learn some things too. When I interact with them because they’re also doing a lot of the training those leaders and top performing sales reps also highlight to me that, even though they’re leading the charge, these tools are helping them as well and so we’re gaining share with them as well.

Thank you very much. That’s helpful. Last question I had was, kind of around liquidity or some thinking here. If I look at, you had about $180 million of debt it looks like you shrunk your line to about $200 million, if I kind of think of it $20 million of liquidity you have there from earlier comments that sounded like, if we reinvest it back into some working capital there was a one-time $7 million cash through there that hit are officially lower that, but also dovetailing out with your comments, you may need to invest a little bit inventory, you’re doing some moves. It looks like, at least my math suggests half or more of that could end up that $20 million availability could end up being eaten up and then CapEx is going pick up a little bit in the near term too. Granted I’m not giving you a lot of credit for what should be generated in Q4 with cash in the near term, but it would seem as though, we’re not leaving a lot of room to maneuver, if we have a one quarter, two quarter blip or something happened within markets. Can you kind of walk through what the thought process here was? Or it is something that you decided to do with or there’s something that’s dictated to you or B; even the notion that [indiscernible] it may seem to curtail your ability to execute M&A in the short-run, you’d have to sell before you’d buy something on those lines. I mean that’s been a piece of your long-term strategy is to grow the business in organically as well.

All right, so couple of questions in there. Let me break it apart here. First Chris, the first let me correct something here. The $200 million was the revolver, so we still have a $100 million of private placement debt. So it’s not $20 million, it’s $120 million that’s available. So let’s make sure you understand that correctly.

I forgot piece, thank you. That makes me feel a lot better.

Yes, okay. So we do have covenants of course, that require certain descriptions to be met on that, but I mean I will say our balance sheet does have some constraints and so that’s you see this focus that we have from a capital allocation standpoint of making sure that we’re driving cash flow, paying down debt and so forth, so that’s part of why, that’s the focus. It’s always going to be a focus for us frankly as we move forward because of our long-term strategy, but it’s more pressuring at the moment, given some of the constraints we have. In terms of M&A, M&A is a process and we’re just getting out there in the market and introducing people to our strategy and we might be interested in, getting in the deal flow, building a funnel, but even within that it’s very, it can be very random. I mean certain things come to market and you can’t control the timing of that, the owner of the business controls the timing or any of that. So we’re certainly in a position where we feel we could be ready, but we’re also in the position where we’re cultivating for the long-term a variety of different strategies and M&A and that just, that takes time no matter what you’re doing. So you have to be ready to go at a moment’s notice because as I said things come on the market and we will be ready for that. It’s something that we really like and we’ve been looking at it comes on the market, but we’re also looking at this, this is a long-term strategy and I’m certainly not going to be pressured by anybody that you have to do a deal here or don’t do it, it’s not the way I think. We’re going to do the best possible deals for Myers Industries and our shareholders and we’ll do them on our own timeline as best we can. Did you have a follow-up, Chris? Or does that answer your question?

I was going to say, thank you. That’s all I needed. Thank you.

Your next question comes from Adam Josephson from KeyBanc. Your line is open.

The debt covenants the $300 quarter, is that right, Matteo?

It’s 375 for the first half, then it goes down to 350 in the third quarter and 325 in the fourth.

Okay, thank you. On resin I know, higher resin hit your profit in the quarter you’re implementing price increases to recover that. Now we had ethylene and propylene [ph] prices going down so presumably you’re expecting resin prices to go down from here and if so, how that effect the effectiveness of these price increases that you’re implementing, if at all?

Good question, Adam. I think. So a portion of our business is actually indexed, so it will follow the commodity fluctuations. We passed a few price increases in April and so far everything is going well, but as you said I confirm your view that we’re seeing, we’re forecasting actually the resins to go back down in the back end of the year. So at the end of the day, this $1 million impact that we had on the raw material will correct itself by the end of the year.

Thanks, Matteo and just one question on the second quarter. Based on your commentary about the Ag market I would assume you expect your profit to be down in the second quarter from a year ago, is that a reasonable assumption?

We’re not willing to specific guidance on - so that [indiscernible].

Okay, terrific. Thank you.

There are no further questions at this time. I turn the call back over to presenters.

Thank you. We thank you 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.