Myers Industries, Inc. (MYE) Q4 2017 Earnings Report, Transcript and Summary

Good morning. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Myers Industries' Q4 and Full Year 2017 Earnings Conference Call. 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, Vice President, Investor Relations and Treasurer, you may begin your conference.

Thank you. Good morning. Welcome to the Myers Industries fourth quarter and full year 2017 earnings call. Joining me today are Dave Banyard, President and Chief Executive Officer; Matteo Anversa, Executive Vice President, Chief Financial Officer and Corporate Secretary; and Kevin Brackman, Chief Accounting Officer. Earlier this morning, we issued a news release outlining the financial results for the fourth quarter and full year of 2017. If you have not yet received a copy of the release, you can access it on our website at www.myersindustries.com, it's 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 maybe found in the company's 10-K filing. I'm now pleased to turn the call over to Dave Banyard.

Thanks, Monica and good morning everyone. Thank you for joining us. We are going to start on Slide 4 with a review of the year. We accomplished a lot in 2017 and we are starting to see the results of the work that we did, showing up in our numbers in Q4. Starting on my left, we generated $43 million in free cash flow in the year, an increase of 102%. We are very proud of that. As we said before, we feel that cash is the best measure of performance and we delivered strong cash flow in 2017. And we got there by executing on our strategy. We had strong commercial execution in our - in three of our key niche markets. Double digit year-over-year growth in the consumer markets, and in the food and beverage markets, both due to increased demand as well as good work from our teams there to take shares. We also had high single digit growth year-over-year on vehicle markets that are primarily driven by the work that our team has done in the RV segment. They did a very nice job of delivering the customers there and obviously that market is also very strong at the moment. Operationally, we accomplished a lot with the lot of different improvements moving further towards our asset like business model. We closed too many factories and facilities and relocated lot of our field camp production. We did all that on time and on budget and with minimal or no impact to the customers. And that's a real testament to the work that the team did there, particularly given that in the fourth quarter we did see a large increase in demand. And so we were moving at a time of ramping up production. So it was a very challenging event for the team and everyone did a very nice job. I will talk little bit more about that in a minute. Additionally, due to a lot of this change, we were able to reduce working capital by $10 million within the year, and that helped contribute greatly to our cash flow performance. And what I want to highlight here is that these changes and reductions in working capital are due to fundamental structural changes and good process improvements that we are doing within the business. So as we move to an asset like business model, we are moving certain operations outside that we don't need to do, and by doing that we are lowering inventory because the inventory is therefore carried at suppliers. And also increasing payables as we do that. So in addition to that we have also done a good job of the basics of blocking and tackling of the working capital management such as negotiating better terms with our suppliers and our customers. So overall nice improvements there on working capital, and we expect that to continue moving forward. As we highlighted in our earlier press release, we've divested our Brazil operations in the fourth quarter. These were non-strategic. We have been working on these for a while and we are happy with the outcome there. End results, the work that we did we were able to reduce our debt by almost $40 million in the year, and reduced our net debt adjusted EBITDA ratio to 2.5 and what that does is sets us well to continue with our strategy, looking at M&A as a growth trajectory for us. And we established a nice acquisition pipeline throughout the year, and we are very happy with where we sit there. Now with all that worked on, we still have our challenges, there's still a lot of room for improvement in some areas, And I will go through that now, particularly in Distribution segment of our business, we showed some good progress through the year, but we are not happy with where we are, and we are not satisfied that we have reached the kind of growth that we expect out of that business. Overall for the year, the sales declined 6%, much of that decline was in the first half, so we did see some improvement in the second half, which we are happy with. A lot of that improvement came from the tools that we have put in place for our sales team, but we are still seeing pretty good decline in some of our territories and we have isolated that to certain areas, about 5 or 6 territories that we feel, we are losing in and we are focused on that moving in at 2018 as to how we can improve there. We also suffered a bit in profitability in the Distribution segment, a lot of that from the investments we were making in SG&A. We think these are good investments and they are yielding results in those territories where we are strong, we are seeing in some cases double digit sales growth and even better profitability growth in those territories, it's just what not wide spread enough across the entire group that we are seeing it in the bottom line. So we are satisfied with those investments. However, it's not showing up in the yield growth bottom line yet. We have got new leadership in place there and we are looking at a number of different things. We still feel that in the territories where we are underperforming, our turnover is too high. So we don't have continuity of sales coverage. We do still have some process challenges where we are causing probably more work and confusion than we need to ourselves. And then we are looking at a variety of different ways as we look at these territories where we are underperforming and losing that we can go-to-market differently and address that. Moving over to Material Handling. We are not yet realizing particularly in the fourth quarter, the full restructuring benefits. Primarily, reason for that is that as we were moving these factories we were --we saw a ramp up in demand which is a good thing, it's a good problem to have but we wanted to focus our attention on making sure that we serve the customers well. And so in order to do that we incurred higher costs than we would normally want to have. So and the reason for that is we weren't able to put the lean processes in place as we were reorganizing these factories. So we started on that later in the year than we expected, late December, early part of the first quarter. We are continuing to work on that; we are seeing a lot of improvement in a rapid fashion in a number of these locations which is great. But we are not seeing yet that quite the full benefit of that restructuring as we go. We expect to see that continue to improve as we put these lean processes in place through the first quarter and then get the full benefits starting in the second quarter of this year. In addition to that, we had raw material increased throughout the fourth quarter. Our processes are setup to cover the costs and what ends up happening there is you get margin compression. So we did cover the cost in the fourth quarter of the increases but not the margin. What we did in the late part of fourth quarter was to evaluate our pricing processes for both periodicity; so if you think about it some of our processes only change once a quarter, sometimes it's only once a year. So we are looking at that as a method for improvement on this, and also we are looking at the indexes that we have. Some of our business indexed and those mechanisms didn't quite work the way we wanted. So, again, we are happy with the fact that we are able to recover our costs. And obviously the way these things work we - in a deflationary environment we get the benefit for a period of time and that's when we make it up. We are trying to do is look at the periodicity and make sure we can make that change happen quicker, and so we are evaluating all of our pricing in that regard as we go here and into the first quarter. And we are seeing some benefit of that but it's going to take a few more months till we get through that. So, those are the achievements and challenges for the year, and I am to turn it over now to Matteo for the specifics for the quarter.

Okay. Thanks, Dave and good morning, everyone. I will review today our performance in the fourth quarter and total year, as well as the cash flow for the year. So if we turn to Slide 5, I will walk you through an overview of our fourth quarter 2017 performance on a GAAP basis. And as always the numbers in the presentation reflect continuing operations. So as you can see on the chart on the top left side of the page, net sales increased by 15.6% to $140.1 million compared to $123.3 million of the fourth quarter of last year. Excluding the impact of foreign exchange, the increase in sales year-over-year was 13%. This increase was primarily the result of higher sales in key niche markets within Material Handling, partially offset by declines in the Industrial end market and Distributions segment. Gross profit increased $3 million year-over-year due to higher sales volume and price partially offset by unfavorable mix and operating inefficiencies. The benefit from the pricing actions as Dave mentioned before, mostly offset the raw material cost during the quarter. SG&A expenses were flat year-over-year and as a result our GAAP diluted earnings per share were $0.06 compared to a loss of $0.03 in the fourth quarter of last year. If we turn to Slide 6, I will give you an overview of the key variances on adjusted basis. So if we start at the top right side of the page, adjusted gross profit was $38.7 million in the quarter, compared to $35.3 million of last year, corresponding to an increase of $3.4 million. Similar to the increase in GAAP gross profit, the increase compared to last year was due to higher sales volumes and price partially offset by unfavorable mix and operating inefficiencies related to the factory footprint realignment in material handling. Adjusted SG&A was flat compared to last year; lower healthcare costs and depreciation and amortization expenses were offset by higher variable selling expenses and recruiting fees. As a result, adjusted operating income increased by $3.2 million to $5.6 million; adjusted diluted earnings per share were $0.09 compared to $0.01 in the fourth quarter of last year. In Q4, we also had a positive impact from the new tax legislation of about $1.2 million or $0.04 a share and an expense of $1.9 million from debt extinguishment both of which were excluded from the adjusted EPS. If we turn to Slide 7, I will give you an overview of the performance by the segment, so if we start from the left side of the page on material handling, sales increased by 26%; the increase in sales was driven primarily by the double digit growth in our food and beverage market due to improved demand in agriculture and share gains in food processing. Our consumer and market was also up double digit due to higher demand for fuel containers which was partially driven by the 2017 extremely active hurricane season. Sales growth combined with pricing actions in our Ameri-Kart business which serves the RV and money market also contributed to the increase in sales year-over- year. Conversely, softer demand combined with our current focus on 80:20 sales initiative which as we mentioned in the past includes the elimination of low margin product resulted in a decline year-over-year in sales in our industrial end market. Adjusted operating income in the segment increased $4 million to $8.8 million which was 83% higher than last year's adjusted operating income of $4.8 million. The increase was primarily the result of higher sales volume partially offset by unfavorable mix and operating inefficiencies. Pricing actions more than offset the increased raw material during the quarter and the restructuring savings were offset by higher outsourced premiums resulting from increased demand that occurred during the final stages of our footprint realignment. Turning to our distribution on the right side of the page, net sales declined by 9%; the decrease in net sales was primarily the result of the deliberate exist of our low margin product line in our Patch Rubber business, which contributed $2.7 million of the decline. Net sales in Myers Tire supply were down about 3% year-over-year due to open territories and decreased demand in the segment's international operations. This decline was partially offset by a higher pricing resulting from the new pricing structure that we put into place at the beginning of the third quarter of 2017. Adjusted operating income in the segment declined by $1.7 million compared to last year, positive price and favorable sales mix only partially offset the negative impact from the lower sales volume. Higher compensation cost driven by investments in headcount also contributed to the decline in the operating income year-over-year. If we turn to Slide 8, I will give you an overview of the total year 2017 performance on a GAAP basis. And as you can see on the chart on the top left side of the page, net sales increased 2.4% to $547 million, excluding the impact of foreign exchange the increase in sales year-over-year was 2.2%. And similar to what we said for the fourth quarter, the increase was primarily the result of higher sales in key niche markets within material handling, partially offset by declines in the industrial end market and distributions segment. Gross profit declined $4.4 million year-over-year due to restructuring expenses of $7.4 million; SG&A expenses increased $2.9 million compared to last year, partially due to $1 million in restructuring related expenses, and as a result adjusted diluted earnings per share were $0.35 compared to $0.38 in 2016. If we turn to Slide 9, I will give you an overview of the full year performance on adjusted basis. And if we look at the top right side of the page, adjusted gross profit was $165 million in 2017, compared to $161.9 million of last year corresponding to an increase of $3 million, higher sales volume and favorable sales mix and lower depreciation expenses were partially offset by operating inefficiencies which resulted from our footprint realignment. Also benefit from pricing actions that we took throughout the year partially offset the increase in raw material cost. Adjusted SG&A increased $2.9 million, lower healthcare costs and depreciation and amortization expenses were offset by higher incentive compensation costs and legal and professional fees. As a result adjusted operating income was relatively flat year-over-year and adjusted diluted earnings per share were $0.51 compared to $0.48 in 2016. As I mentioned during the fourth quarter discussion, the adjusted EPS excludes the positive impact of the new tax legislation and the expense over the debt extinguishment. If we go to Slide 10, I will give you an overview of the performance for the full year of the business segments. So net sales in material handling on the left side of the page increased 7.5%. And as Dave highlighted at the beginning of the presentation, the increase in sales was driven primarily by the double-digit growth in our food and beverage and consumer end market, and high single-digit growth in our vehicle end market. The growth in those key niche markets was partially offset by a decline in the industrial that was partially due as I mentioned earlier to the elimination of the low margin products as part of our 80:20 focus. Adjusted operating income in the segment improved $3.3 million corresponding to an increase of 8%, higher sales volume was partially offset by unfavorable mix, operating inefficiencies and higher incentive compensation costs. Pricing actions partially offset the increase in raw material cost during the year. Turning to the right side of the page, moving to Distribution. And the sales declined by 8.3%, the decrease in the sale was primarily the result of the deliberate exit of our low margin product line in Patch Rubber and a decline in our Myers Tire supply business of approximately 6%. Mixed market conditions at the beginning of the year and territory gaps throughout the year led to a decline in sales volume that was partially offset by price. And we are pleased to see that the new pricing structure that we put in place during the year is producing the improvement that we were expecting. Adjusted operating income in the segment declined by $3.8 million compared to last year, a positive price and favorable sales mix only partially offset the negative impact on the lower sales volume. As we said in the fourth quarter, higher compensation costs driven by investment in headcount also contributed to the decline in operating income year-over-year. Please turn to Slide 11. I will give you an overview of the balance sheet and the cash flow. So as Dave mentioned earlier, we generated strong free cash flow of $43.3 million for the full year of 2017, more than doubling our cash generation of 2016. Thanks to this performance, we reduced our debt by $38.5 million and lowered our net to adjusted EBITDA ratio to 2.5 despite of the lower EBITDA compared to 2016. The ongoing focus on reducing our working capital contributed to the stronger cash flow. Our working capital as a percent of sales in the quarter was 5% which was below the prior three quarters and nicely below our target of 9%. In the fourth quarter, we also completed the sale of one of our facilities in Canada which became vacant as part of the reduction of our factory footprint in Material Handling. So this saves in addition to the other disposition that we did earlier in the year, generated about $9 million of proceeds which helped us further reduce our debt. Capital expenditures decreased by $6.7 million for the full year, better capacity management during the year led to lower capital spending in 2017. However, we expect CapEx to be higher in 2018 as we invest more in growth initiatives. With that I'll turn the call back to Dave who will review our 2018 outlook.

Thanks Matteo. If you can change to Slide 12 please. Looking forward into 2018, we have good momentum coming out of the fourth quarter of 2017 to start the year. We have solid backlog in a number of areas. And so with that we are expecting overall low to mid-single digit growth throughout the year. And what I'll do here is go through each of the macro market that we serve and as a reminder this is our view on the right side of where we think we will be participating not what we think the underlying market growth will be. So starting at the top with the consumer market. We think our performance there will be flat this year. Number of different things are at play here, primarily it's - were flat due to a tough year-over-year comparison. As you all remember, lot of Hurricane activity in 2017, so we shift quite a bit of product in the second half higher than our normal volume in the second half for that business. And we are not expecting that to happen again, hopefully doesn't happen again. And so we have a tough year-over-year comp in the second half. It also does has a little bit of dynamic of a late set up, couple of different factors that are coming into play here but we are seeing a late set up through our channel there. Their working inventory off so we do we have good point of sale data that shows that the market is perhaps behaving normally. However, our channels are getting rid of inventory that they had built up through this second half. And so we are little slower start to the year which we expected and then we will have tough comp in the second half. So that's why we are expecting to be flat. So essentially we are going to make up ground with some share gain which we are very comfortable with. And a big part of that is we do have a new product coming out, that's part of also why this set up is little late is that customers are waiting for that, that's going to come later in the spring. So couple of different factors at play there causing the consumer market participation to be flat. Although we think the underlying consumer situation at the moment is good. Moving down to food and beverage. We are expecting high single digit growth there. We have a very solid agriculture season this winter and naturally we are in the middle of that as we speak. Couple of different factors that play there. One is that farm market itself has reached the bottom and had a little bit of growth in 2017. So I wouldn't call it V shape recovery there but the market itself has stabilized. And also our customer base has stabilized. There is lot of M&A activity amongst those customers. That stabilized and so what we've seen through the fall season and then into the spring here is a little bit of pent-up demand. So we had a very strong Ag business so far this winter. We will see that probably be a little bit less next year. And so we still think we are going to have high single digit growth, but again the second half is not quite as strong I think year-over-year or it's at least unclear at the moment as we look forward. But still we are going to have a very solid year in that business due to the strong winter that we had. Moving down to vehicle. We are expecting again high single digit growth year. I think a very similar market dynamic to what we saw in 2017, somewhat muted auto manufacturing but very strong RV and that pace continues, however, we are very cognizant of the fact that market has been strong for several years in a row now and we are anticipating that probably by the end of this year that market will slowdown. And it is cyclical market so we are keeping our eyes open for any kind of turn there. But consumer sentiment remains strong. The RV market has done a great job of marketing themselves and their growth pace continues. And so it's a nice story and our team there has done a very nice job of being able to improve their capacity continually to deal with this increased demand from their customers and they really done a nice job of helping these customers out, we are seeing record demand in their own factories, helping them manage that and that's really built a nice relationship between us and the customers there where we gain additional business because of it. So we like where we see 2018 for that market but anticipating that at some point next year that slows down a bit. The industrial market which is probably our least niche if you think of it, it's a bit more general of the market we are expecting flat. And primarily that's self-induced. I think the industrial market is moving along at a steady pace at the moment, which helps us and it allows us to really restructure our focus there to make sure that we are focusing with our best products and our best customers to make that business better than it has been in the past. So with that we are going to have a flat year but I think that still is going to improve in a profitability standpoint significantly and so that's where we are focusing our attention. And finally in the auto aftermarket, as I mentioned earlier, we have a portion of our territories that are doing very well here. So that gives us confidence in the investments we've made in this business and the tools that we put in place. We think that we will be able to grow that business in the full year low single digit, probably going to be more of a second half story on that. But really our focus right now is figuring out how we get that kind of growth trajectory in really five or six underperforming territories where we've lost more significantly than others. And again, as I mentioned earlier, it's a combination of personnel turnover. Some of it is process related but a lot of it is personnel and how we are going to market and, we are looking at a variety of different ways of changing the game there to improve on that. So put all that together, we are forecasting low to mid-single digit sales growth in 2018. If we switch to Slide 13, I just go through a couple of key assumptions here. The net sales I just highlighted, CapEx $10 million to $12 million. And once again I want to highlight on here we got a number of questions on capital expenditures in the past. Really, the way to think about CapEx for our business is to focus on the material handling business segment. Because - and which is about $400 million of revenue. And if you do a ratio on that we spend about $6 million of capital last year. So about 1.5% of sales which we think is a reasonable maintenance capital spend for that business. So you can see here we are increasing that, year-over-year we've got a number of growth initiatives that highlighted in the product that we are talking about in our consumer business. And again but you should orient your ratios here to your handling business because our MTS and past business have very low capital needs, if any. Couple about the data points here on interest and D&A and then you can see here at the bottom the effect of the tax bill on our business dropping our effective tax rate to 25%. So with that I'll open the floor up to questions.

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

Good morning, gentlemen. Wanted to just, I have a couple of questions and I will jump back in the queue. But if we could maybe start, I have a couple of questions about a few in the business. If I start with the Distribution one, I see you flag here about $3 million a quarter or so of revenue hit from exiting a business, how should we think about the profitability with down a chunk too? Should we assume that maybe a quarter or a third of that was also related to that I mean I guess what I am trying to do is get a sense of what 2018 versus 2017 looks like? Do you think you are going to be able to get back, some of the people or what you need to have done for that business to show some nice growth next year?

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

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

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

Okay, I know that makes sense. Last question and then I'll turn it over is on the M&A side you know a lot of companies have told us that post-tax law change, so late last year and even the beginning of this year that the M&A gates have really kind of loosened up quite a bit, and tend to favor more strategic type players versus private equity given what will be down the road leverage constraints for deductibility things of that nature. I'm noting also that you guys did get a divestiture done late last year under the wire. How, as you sit today, how are you feeling about M&A markets? Better, worse, how would you take a temperature if I could of your confidence level of getting something done you think this year?

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

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

Yes. So I'll frame it in two ways for you Chris I think that, first of all, like if you look at slide 11, I am very proud of our working capital performance. There's still opportunity there. So I think we have opportunity to continue to improve. In flip side, we're going to spend some of that on capital. We know that and that's okay. The other thing I'll say is we are focused on the targets that we've highlighted a year ago. And that's what we're shooting for and I think if you look at the cash flow we hit the 2018 number in 2017. So we like that and we want to continue with that. And we think if we can hit these other targets we are set up well to continue that trajectory. So definitely we're very focused on achieving these goals. And we think that as we have line of sight to what it takes to get there.

All right, but I mean simply put it would be difficult to envision 2018 cash flow being lower than 2017. Would that be a fair statement?

Yes. I would say so Chris.

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

I think, Chris, that's what's we are looking for.

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

Your next question comes from the line of Chris McGinnis with Sidoti & Company. Your line is now open.

Good morning. Thanks for taking my questions and nice job in 2017. I guess just to follow up on that and just talk about the goals you have out there from last year when you brought out to the targets and just I get just the confidence that, a year into it just how confident are you behind the targets that you do have out there. Thanks.

Sure. I think the way I'm framing is this we put our targets forward and we build our plans with the intent to hit them. So we have line of sight of what it would take to get to the kinds of targets we've set particularly in the short term here we're in 2018. And we have a set of targets in 2018. Obviously, on the free cash as a percent of sales we hit that target in 2017. And on the working capital target we've over delivered on that throughout 2017. So we feel that those are targets that we are comfortable with. I think the EBITDA and the operating margins have always been stretches. They have been beyond what this business has ever done in terms of margin performance in the past. And that's why we set them. We want we want to make this business better into the future. And so those - that's the next step for us. And that's a lot of what I just was describing in terms of the mechanics of how we're thinking about getting there is on the material handling side. it's working on the variable cost side and on the distribution side, it's working on the revenue growth and having that flow through the P&L. So those-- that's where we're focused, I'm making - I'm boiling it down to what sounds like simple things, There's a lot of challenge in getting there, but we're focused on that.

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

Thank you. Thanks to all of you for your interest in Myers Industries and your time and participation today. As a reminder, a transcript of this call will be available on our website within approximately 24 hours. A replay will be immediately available via webcast or call. Details can be found on the Myers Industries website under the Investor Relations tab. Thanks and have a great day.

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