Myers Industries, Inc. (MYE) Q4 2018 Earnings Report, Transcript and Summary

Good morning. My name is James, and I'll be your conference Operator today. At this time, I'd like to welcome everyone to Myers Industries Quarter Four and Full Year 2018 Earnings Call. [Operator Instructions]. Monica Vinay, you may begin your conference.

Thank you, James. Good morning. Welcome to the Myers Industries Fourth Quarter 2018 Earnings Call. Joining me today are Dave Banyard, President and Chief Executive Officer; and Kevin Brackman, Executive Vice President and Chief Financial Officer. Earlier this morning, we issued a news release outlining the financial results for the fourth quarter 2018. If you've not yet reserved 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 the transcript of the call shortly after this event. Before I turn the call over to Dave and Kevin 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 result to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings and may be found in the company's 10-K filing. I am now pleased to turn the call over to Dave Banyard.

Thanks, Monica, and good morning, everyone. Thank you for joining us. We're going to start on Slide 3 with an overview of 2018. We were pleased with the way the year ended, closing out 2018 on a high note, generating adjusted earnings per share in the fourth quarter of $0.13. We were also pleased with the full year results, as we generated adjusted earnings per share of $0.76. Along with that, we generated free cash flow of $55.3 million converting almost 10% of sales and achieving a 28% year-over-year increase in this important metric. Contributing to this success was our continued focus on net working capital, which improved to 3.8% of sales at year-end. Also contributing to our success was the 3.6% sales increase for the enterprise across 2018 led, in part, from double-digit sales growth in our food and beverage market. We also did portable fuel container in the fourth quarter in our Scepter business, which, we anticipate, will drive mid-single digit growth in the consumer market in 2019. We expanded our adjusted gross profit margin by 160 basis points to 31.8%. Similar factors contributed to our improved gross margin, including price initiatives throughout the year, continued improvement from our 80/20 and lean initiatives, and the strategic realignment of our factory footprint back in 2017. Adjusted operating income increased by almost 29%, and adjusted diluted earnings per share were up 49% for the year. Finally, we had a successful secondary offering back in the spring of 2018, and this repositioned our balance sheet. Kevin is going to provide more detail of the balance sheet in a moment. Now 2018 was not without its challenges. Our Distribution Segment underperformed to our expectations, with revenues for this segment declining by 4.3% for the year mainly due to lower equipment and international sales. As we highlighted on our last call and we'll go into more detail today, we're implementing a set of transformational actions designed to increase sales force effectiveness, reduce costs and improve contribution margins. As on the side, however, I'd like to point out that in the fourth quarter of 2018, we did have low single-digit growth in the Myers Tire Supply business, as we're starting to see some improvement from the actions previously taken. Another challenge was in our Material Handling segment. Sales to our RV customers declined at a more rapid rate in the year than we had anticipated. Following multiple years of solid growth, the pause in market conditions was not completely unexpected, but the degree of the initial downturn in the second half of 2018 did catch many offguard including us. The decline in revenue in this business continued through year-end and is carried over into the first quarter. We're actively managing this challenge with an active funnel of new opportunities, we're pursuing in adjacent markets, and we're looking at a variety of cost-savings measures as well. Now I'll turn it over to Kevin to go through our financial review for the fourth quarter. Kevin?

Thanks, Dave, and good morning, everyone. Today, I'll review our 2018 fourth quarter financial performance, including our balance sheet and cash flow. Details regarding full year performance can be found in the appendix of the presentation. Please turn to Slide 4, and I'll begin with a review of our fourth quarter operating performance. All numbers in the presentation reflect continuing operations. Net sales for the fourth quarter were $138 million, a decrease of 1% compared to the fourth quarter of 2017. Increased sales in the Distribution Segment were more than offset by decreased sales in Material Handling due to sales declines in the company's consumer, food and beverage and vehicle markets. The adjusted gross profit margins increased 290 basis points to 30.5%. This was primarily due to pricing actions and savings from the 2017 footprint realignment, partially offset by lower sales volumes and unfavorable mix. Adjusted SG&A expenses were $34.5 million during the fourth quarter, which was $1.9 million higher than fourth quarter of 2017. This was mainly due to $1.4 million of cost incurred for resources to assist with the planning and implementation of our transformation initiatives in the Distribution Segment. The departure of the company's previous CFO resulted in a reduction of cost of $1 million, which were offset by higher variable compensation costs. As a result of the higher adjusted gross profit, our adjusted operating income increased to – increased 36% to $7.7 million for the quarter. And adjusted earnings per diluted per share were $0.13. This compares to $0.09 for the fourth quarter of last year representing an increase of 44%. Now let's turn to Slide 5 for an overview of our performance by segment. Net sales in the Material Handling Segment decreased 2% to $99.6 million. The decrease was driven by a decline in our consumer market due to unusually high hurricane-related volume in the fourth quarter of 2017, a decline in our food and beverage market due to decreased sales of our seed box and a decline in our vehicle market due to a softening RV market. These declines were partially offset by higher sales to our industrial market driven by a large customer order during the fourth quarter. Material Handling's adjusted EBITDA increased 27% to $19.3 million. The increase was primarily the result of pricing actions and the savings from the 2017 restructuring project. In Distribution, net sales increased slightly to $38.8 million. Sales at our Myers Tire Supply business increased low-single digits from higher sales of both consumables and equipment, partially offset by lower international sales. Distribution's adjusted EBITDA decreased $1 million to $0.6 million. The decrease in adjusted EBITDA was primarily the result of the $1.4 million of incremental cost, I mentioned earlier, which were incurred to engage outside resources to assist with the development of the transformation initiatives. Please turn to Slide 6, and I'll review our balance sheet at the end of the fourth quarter as well as our cash flow and working capital performance. We generated strong free cash flow of $17.7 million or 12.8% of sales for the fourth quarter of 2018. This was due primarily to higher earnings and lower working capital. Working capital as a percent of sales at the end of the fourth quarter was 3.8%. Free cash flow for the full year was $55.3 million, an increase of 28% compared to 2017. Due to strong free cash flow and a secondary offering we completed in May, we reduced our net debt by $131 million during the year to $17.9 million. As a result, our net-debt-to-adjusted-EBITDA ratio decreased to 0.3 times at the end of 2018. I will now turn the call back over to Dave, to review our outlook for 2019 and provide some insights regarding our Distribution Segment.

Thanks, Kevin. We're moving to Slide 7. I'm going to spend a few minutes going through our Distribution Segment transformation in further detail. The initiative is focused on the three key areas for improvement. . First, we're undertaking a shift in our go-to-market. As part of that shift, we're expanding our strategic accounts teams. We're building inside sales team in order to offload some of the smaller accounts to a different channel. To better align the selling function with the changes in buying behavior that we're seeing in the market, we're going to segment our sales organization differently, also include the consolidation of larger customer teams in the field and taking a more individual market segment approach on the national scale. Also, we're going to expand and enhance our e-commerce platform, utilizing an improved digital storefront and taking advantage of the economies of scale available through coordination efforts with other online marketplaces. Our second area of focus involves simplifying several aspects of the business. By utilizing 80/20 to improve both our throughput and efficiencies, we intend to improve our contribution margin. Some of the steps being taken to achieve this include the simplification of our pricing structure as well as additional enhancement to capture value. As you may remember, we completed a project on our pricing structure about 1.5 year ago. We're now expanding the pricing process to other parts of our customer base and focusing on additional areas of price leakage. For example, we had to create new policies around freight and are introducing minimum order quantities. Finally, as part of this initiative, we're consolidating parts of our supply base to rationalize and simplify our product offering. We realized that we've gotten far too complex in our product offering and operations. These steps are intended to streamline this process, leading to a higher overall contribution margin. Our third area of focus is to implement logistics and overhead efficiency programs, as we change our go-to-market strategy. Our operations have to adapt to the changing demand of our customers in terms of their product needs, quantities and delivery schedules, thus we need to optimize our distribution network and cost structure to align with the changes we're marking across the front-end of the business. In summary, we anticipate initiatives are estimated to deliver $5 million to $7 million in annualized benefits starting in 2020. We also anticipate at this time that we will spend approximately $1 million to $2 million in 2019 in additional expenses to execute these initiatives once finalized. We begin – we began our initial work in the back half of 2018, as we spent $1.4 million in the fourth quarter getting things started. We estimate the net benefits in 2019 could be between $1 million and $2 million for the full year, with most of these benefits coming towards the tail end of the year. Our goal with these initiatives is to improve our EBITDA margin in this segment to 10% by the end of 2020. Next slide, I'm going to spend some time reviewing our 2019 outlook for the year. First, I want to highlight that we are initiating earnings guidance for 2019. Given the uncertainty in the markets in the world today, we believe it's important to put more information in the hands of investors, so we're aiming to do that this year with annual earnings guidance. I'll get to that in more detail momentarily. From a market perspective, for the full year, we're looking for sales to be flat, primarily due to headwinds in our agriculture and RV end markets. Across the rest of our business, we have solid initiatives in place and end market momentum in specific instances, but we expect to offset these headwinds. I'm going to some details on what those are, as we review each of the end markets. Starting at the top with the consumer market, we expect annual revenue to be up in the mid-single digit range, driven by growth from the new product launch. The new spout launch in our Scepter business took place in the latter part of Q4 and is available in the market today. We anticipate our food and beverage market to be down in the mid-teens range, with much of this weakness to be front end loaded in the first half of the year due to a difficult comp year-over-year in our seed box business. As a reminder, the seed season covers Q4 and Q1. We had a very strong season from Q4 2017 to Q1 2018, and that's a result of – as a result of pent-up demand from several years of lower volume due to farm incomes and industry consolidation. As we analyze that season here in Q1 of 2019, we'll see a drop off, which we also experienced a bit in the fourth quarter of 2018. The volume today is more normalized, with a monetary risks associated with the tariffs being negotiated with other countries. We currently have very low visibility in the next year season because of this. And we're also seeing competitive pressure in this business for the first time, as customers have further adopted box packaging over alternatives. In other parts of the food and beverage market, we're seeing some growth, including increased sales to food processing customers. A small piece of that market has been good – some good commercial execution and we expect this to continue. In the vehicle market, we're forecasting revenues to be down mid-single digits. The biggest factor here is a continued decline in the RV market. The weakness we've seen here is being experienced broadly across the market with industry shipments down 20% towards the end of Q4, and we're seeing 40% down so far in Q1. We do have some offsets to that with the automotive side of our business, so end market demand levels are slowing there as well, because of our business in the automotive market is more directly tied to the number of model year changes in a given year, we can still gain even if the individual car sales are down in a given year. There are, of course, limits to this – to these. These cycles are ultimately tied together over time, but our current expectations are that sales to automotive customers will improve in 2019. We anticipate industrial market to be up low-single digits, with some recent larger orders with our large industrial distributors with generally steady pace of business in that area. In auto aftermarket, we anticipate sales to increase in the low to mid-single digits. We're seeing some increases at the start of the year, continuing from the growth we experienced in the fourth quarter. Additionally, we're focusing top line improvement throughout the year as we finalize and execute the strategic initiatives we reviewed earlier. In summary, we're anticipating sales for the year to be flat overall, with adjusted operating margins expected to grow. We estimate diluted earnings per share to be in the range of $0.75 to $0.85. While we're not going to provided quarterly guidance, it's important to highlight that due to difficult comps that I underlined already, we will start the year slower than last year. We believe that the other end market factors, I mentioned, will help us as we move through the year. One final note, we have a higher number of fully diluted shares this year compared to a year-ago. Turning to Slide 9. This is a list of all of our guidance items for 2019, I'm not going to go through each individually. But again, we're forecasting sales to be flat, and estimating that diluted earnings per share will be in the range of $0.75 to $0.85 per share. And lastly, we anticipate spending $10 million in capital during the year. Finally, switching to Slide 10[ph], You'll see a brief review of our long-term financial targets, with 2018 results included, as 2018 was a check-in point for us. In summary, we're about one year behind in a couple of metrics, but we've also overdelivered on a couple of others. So I'll give ourselves a mixed review. Specifically, our adjusted operating margin was 7.1% in 2018, behind the 8% target that we were aiming for. We had a clear path to – the 8%, but the underperformance in our Distribution Segment caused us to fall short of that goal. As I outlined earlier, we're finalizing our plans to address this issue, and actions are underway to move us closer to this target in 2019. On cash and working capital, we overdelivered with very strong performance on both of those metrics, contributing to our ability to pay down debt to be below two time debt-to-adjusted EBITDA. On adjusted EBITDA, we came up short at $66 million versus our $7 million target. Similar to our operating margin miss, the underperformance here relative to our goal was due to the results from our Distribution segment. We remain focused on our 2020 targets and executing plans to make these a reality. With that, we'll open the line to questions.

[Operator Instructions] And your first question comes from the line of Tyler Langton from JP Morgan.

Good morning Dave, Kevin and Monica thanks for taking my question. Just on the Distribution side, Dave. I guess for the low to mid-single digit sales growth, I mean, I guess, how much sort of visibility do you have? Is that sort of where the underlying market is growing, and you expect kind of with the changes to grow with the market? Or you could take some share to get those growth rates? Any details there would be helpful?

Sure, I think it's a combination of things. I think generally speaking that is not high-growth market. There are always individual factors that play into that. But I think we're – we are focused on what we can do to drive growth internally. So our initiatives are around improving which segment in the market we're going after and grabbing share. I think I've highlighted multiple times in the past that we've been losing share over the past few years. So our initiatives are all around turning that around. So our – what we're forecasting is a fairly low-growth market. And so the growth that we're projecting here is a combination of a little bit of that market growth but mainly from our own initiatives, where that this change in our go-to-market strategy will affect that outcome.

Okay. That's helpful. And then just on the free cash flow side. I guess, in 2018, RV benefited from sort of working capital and then, sort of, lower Capex. I guess, can you talk a little bit, how you think about sort of the moving parts for 2019? And I guess, maybe in a relation to your, I guess, the 2020 goal of having free cash flow to sales of greater than 9%?

Yes. Sure. So our goal is always to improve free cash flow year-over-year. But keep in mind two things, we're projecting CapEx spending of $10 million in 2019 versus the $5 million that we had in 2018. And also we significantly improved working capital in 2018, and had generated another $6 million, $7 million of cash. So we have a couple of headwinds to overcome if we are going to improve our free cash flow in 2019.

Okay, that's helpful. And then why – what's

We had a couple things on that, Kevin. The – obviously, we've been – I think we've been doing a wonderful job as a team. Kudos to our organization for their working capital improvement. We always want to continue to improve that. I think there are still some opportunities. But I mean, I think, we've made a lot of big progress, and so now, I'm saying, we're probably more in the sustained mode there, that's, as Kevin highlighted, that's a headwind. So now we've got to switch to having earnings be a generator of cash. And so that will be a positive for us in this year to offset some of that. Obviously, it was positive in 2018 as well. On the CapEx side, I think it's important to highlight that making a further pass prior to my arrival, the company spent a lot of capital on, and although, we got a great return on that capital spending. So we've been very diligent about how we spend capital. I think we have some good projects on the list for this year. We're very strict about how we deploy that and how we approve projects. But it'll be lumpy for us because some of the projects are just large dollar amounts. And so you get these lumps, and we're anticipating a little bit of that coming into this year. So I think the $5 million that we spent – $5 million or so that we spent last year was low. We'll have more projects on the list this year, and we're going to evaluate them as strictly as we always have, and we're just – we're very strict about our stewardship of capital. But we do anticipate spending more there.

Got it. And then just last question for – on the Material Handling side. I think the goal for 2018 was to get around $8 million of savings from the footprint consolidation. Is that used to achieve that? And is it – are the benefits from that program sort of largely done? Or can anything sort of – can we get anything in sort of 2019?

Yes, we did achieve the $8 million in savings in 2018. And because we had pretty much completed the project by the end of 2017, those benefits are pretty much done at this point.

Got it. Thanks so much.

Next please.

Your next question comes from the line of Josh Chan from Baird.

Hi good morning and congrats on a strong quarer.

Hi Josh, good morning.

Thanks. Good morning. My first question is on the Distribution transformation, just wondering like if there are certain key metrics that you're looking at sort of internally to measure the success of those initiatives? And did some of those metrics improve kind of with the revenue improvement, I guess, in Q4?

To answer your first question, it's absolutely, we have a pretty robust dashboard that we track monthly on an – in fact, Chris and his team are tracking daily in a lot of cases. I think the thing to point to right now that – this is a growth initiative, there – we do highlight that there are margin enhancement portions of this. But ultimately, we want to grow this business. We – this is not a – if you think about Distribution, it's not a business where you have leverage – factory overhead and take out cost that way. So we want to grow this business. So ultimately, for you all, you should be, I think, grading us on our growth. And so I think we did see some of that in the fourth quarter. And I'm not going to – we're certainly celebrating with that team. They had a strong finish to the year, and we're proud of them for that, but one quarter does not solve the problem. So I think we're continuing to monitor that, and to me, that's a metric that you all should judge us on, our growth. Ultimately, that will turn into – if we're efficient with that growth that will turn into EBITDA margins.

All right, that's fair. So on the industrial side, you mentioned kind of a large order in Q4. Is that a sort of a load into a large customer? Or can you talk a little bit more about that? Or possibly kind of size that for us in terms of what it might be, if it's sort of non-reoccurring?

Sure. It's a – we have certain products that we sell to networks. Again, remember a lot of our products are used in closed-loop supply chains and supply chain networks. And so yes, I would characterize it as a load-in. However, it's with a customer we've had for a long time. And so this isn't the first time, they've order this product from us. It tends to be a fairly lumpy product. We're looking at how we can – it's a same product more broadly, because it's – it is a nice when it comes along. But we rather not be so lumpy. But yes, that's essentially what is it, is a load-in for various networks within our supply chain.

Okay. And on the food and beverage side, you talked about sort of uncertainty with the tariffs situation. If there were to be sort of some resolution on the tariff side, would that be viewed as a positive for your end-market, I guess?

So I would – I think, the short answer to your question is, yes, depending on how what that resolution, I guess. For us, and I think for farmers, the Asian region is a very important market for them, particularly for the types of products that our product carries. So seed, corn and soy are very important products, both for feed stock as well as for live stock as well as for just basic products. And so farmers benefit from more opened trade with Asia. And so we would benefit from that as well. So that's what you should queue on. Again, I think it's just more of an uncertainty, so people are less willing to commit this early in the year to what they're going to do for the Q4, Q1, 2019, 2020 season, which is starts this fall. So we'll know more coming into the later part of the second quarter, early part of third quarter. But it certainly would be a positive from my view and a positive for American farmers if there were – if we didn't have trade war or tariff structure around certain crops and livestock.

All right, that makes sense. And my last question, I think in the press release you mentioned the positive sales mix leading to higher margins in 2019. I guess, with Distribution up more than the overall company and food and bev down, I would've thought that mix might have been the headwind, so could you kind of talk about mix, I guess? And how you're thinking about that?

Well, I think your point is fair. I think the ultimately, strategy drives mix. So when we are focusing on growth in particular niches, in particular areas, we're focusing on where we think we can get the most profit – profitable growth. So beyond – I can't – I don't want to go into a lot more details on that because for competitive reasons. Each of our product has a very small competitive set, and it just doesn't really help us to have more specific information out there. But suffice to say, as we execute – 80/20 as a growth tool, helps you focus on where the best profitable growth is, and that's what our aim has been. So as we aim for different spots for growth, those generally should be more profitable.

Okay. That’s fair, great and thanks for the color and congrats on a great quarter.

Your next question comes from the line of Lance Vitanza from Cowen. Go ahead, please your line is open.

The questions – I wanted to start on the Material Handling side, particularly RV market decline. I know that there was a real boom there. And so the question is, could you put some more context around the down trends that we're seeing today, is this sort of a reset to a more normal level after a boom? Or should we expect additional cyclicality? Or are there secular trends at work here? Any additional color there would be helpful.

Okay. I think there are two things at work here. One is there's a large amount of inventory overhang in the retail channel here, if you will, for that market. And so – and it's a little tough to tell, because this isn't the time of year that people are buying RVs. So the pace of retail sales there is probably weak regardless of – just because of seasonality. But what you have with that overhang of inventory as you always so with any dealer-oriented or channel that stocks inventory is that they are now ordering from the OEMs, because they don't need it – enough room for it, frankly. And so until we get through that inventory overhang, we'll have an artificial dampner on the overall demand for our product as a supplier to the OEMs. And so that's a big factor in what we're seeing right now. If you read analyst reports or listen to the industry, they still think the fundamentals are okay. This is a – an industry that's driven heavily by consumer's sentiment. So it's a general economy question, really is to how the demand will play out this year. Again, I think that realistically speaking, I have to see that we're reaching a peak, and so demand has to at least flatten or maybe go down at the retail level, and then you add in the overhang of inventory that the retail channel has and that's make a bigger – even a bigger headwind for us. So we're preparing with that in mind, if it's better than that because if demand is the same as last year, that inventory overhang may disappear quicker, but that's what we're trying to monitor. And we're – there's some information on that, we're not plugged in as much as I'd like to be at the retail level, but we're working on trying to find some of that information. So we can see is how the progress being made there.

Okay, thanks. And then on the food and beverage side, I was hoping you could talk a little bit more specifically about the tariffs? I mean, specifically, where have they been historically? Where are they now? And is the fear, let's say, are going to become more adverse going forward? Or had they already become adverse, and we need them to be relaxed?

No, I think, this is more around the – if you think about the reaction from China specifically, let's use China, because it's probably the biggest player in this. The reaction of – from China to our tariff threats has been to poke at the biggest export products that we ship to there. And agriculture is one of them. So the threats they've been put out there are potentially harmful. They're not necessarily being enacted at the moment. So it's still in – and that's why there's a bit of a mystery around this. It's hard to tell whether U.S. farmers will be at a disadvantage compared to say Brazil, as an example. It's a bumper crop in Brazil as well. And Brazil has developed pretty good relationships with China on a number of fronts. So that – efficient manner is the southern countries that are producing the same crops. So and specifically also the tariffs on a livestock, so a lot of the boom we've had over the past 10 years in livestock production in the U.S. has been shipped to Asia, and that's an area that we get tariffs that product than becomes more expensive and they look for alternatives. So it's an artificial wall that can be torn up pretty quickly that we have to perform in the U.S. farmers, who are going to be the first to feel that. If you read anything in the paper, there's a lot of – there's an excess supply, there's – prices are down, these are all headwinds for U.S. farmers. And eventually that comes back to us as a cost component of the farm value chain.

Okay, thanks. And just two quick questions on the EPS guidance for 2019. The first is, is that adjusted to reflect the add-back of those – whatever – cost implement Distribution Segment initiatives and other items, I assume?

Everything is in that range that we communicated. So it's not adjusted. We have – all the implementation cost have been incorporated in that guidance range.

I see, so there might be some incremental adding back just for me to do. And then, is it fair to say that, that range – does that then reflected, I guess, uncertainty around the tariffs, but also the sort of the relative success or failure of those go-to-market initiatives in the Distribution Segment? Or are there other variables that should we thoughtful about?

I think the range reflects our view of what we think will happen this year.

Okay. Alright, thanks guys.

Thanks Lance.

[Operator Instructions] And your next question comes from Chris McGinnis of Sidoti & Company. Chris, your line is open.

Good morning. Thanks for taking my questions. Just quickly, I want to ask just about any maybe new product launches this year that have come into the pipeline? And then, I'll ask – I got one more after that. Thanks.

Sure, I think the one that we're prepared to announce today has actually launched in the fourth quarter, which is a new fuel – portable fuel container and spout product with our Scepter business. It's in stores as we speak. And I think we're excited about that.

Okay. And then, I may have missed this, I'm sorry, I got on the call a little late. But just in regards to the decline in the RV, and I guess, just if thinking about utilizing those assets may be differently now. Have you looked at maybe other adjacencies to use that equipment or that space?

Yes, that's a good question, Chris. Absolutely, I think, as I mentioned in the discussion about that market, we are – we absolutely are looking at adjacencies. And those will be new products, obviously, I'm not prepared at the moment to highlight exactly what those are. But there a number of different adjacencies that we are targeting there, both commercially, sort of, new products to address. So yes, that's – that is the goal with that. It's a very flexible operating model there that we have in that business. And we're actively pursuing opportunities.

Great, thanks for taking my questions. Good luck in Q1.

Thank you.

Your next question comes from Ryan Mills of KeyBanc Capital Market. Ryan, your line is open.

Good morning guys and congrats on the quarter.

Thanks a lot.

Yes, nice to see a slight return to growth in Distribution and also the growth you're forecasting in 2019. So can you provide some color on the changes that have taken place since your last earnings, and the feedback from both your sales force and customers?

Sure. I think the – first off, what we've done to recognize that we have this channel was to listen to customer. And so I think that a lot of the feedback from our customer is incorporated into our plan here. So that's the customers are guiding this in a lot of ways. I think the sales force – I will say this, that there's a lot of energy in that organization right now in terms of what we're trying to do. Obviously, change is difficult for anybody. And so we're thoughtful about as we make these changes, and we're doing that at the pace that we can handle as an organization. And – but I think there's a sense of energy within that group that's really exciting for them and for us to see as a – are going out and really kind of attack the places where we think we haven't been successful in the past. And we're starting to see some improvement there. And that's – and that always helps when you're winning a little bit. So we're excited for them. We're very – we're cautiously optimistic there. I think there's a lot of work still to be done. And so I think the first half of the year is still going to require tremendous amount of heavy lifting to get where we want to be.

Okay. And then could you provide some color on the trends you're seeing in Distribution in early 2019? And is it safe to assume growth accelerates as the year progresses, given your strategic initiatives taking place?

The way we have it planned is that there will be more growth in the second half of the year from this, particularly, on the profitability side because of we're front-loading the investments and spending. We are seeing a steady pace on that business carried from the fourth quarter so far through February, which is good to see. I think a lot of that is, again, the team is energized they have very clear objectives. So we're seeing some results from that. But again, I'm cautiously optimistic, it's – I'm not going to hang my head on a short period of time of success here. We have to sustain this over a longer period.

Okay. And then just a couple of more for me. Going to the goal of 10% adjusted EBITDA margins by the end of 2020 for Distribution. Can you give us some color on what type of growth you're assuming off your 2019 forecast to achieve that?

I'm not going to get into growth rates for the top line that far out, that's – let's get through 2019 first, Ryan.

All right. Just forget, I asked. And then going to your market strategy for that business, focusing on larger key accounts, should we expect that to be a mix headwind as that customer class continues to grow?

Yes, so if you think about what we have to do to be successful here we have to alter how we are operating along with how we're going to market. So certainly, larger customers are going to expect different service requirements, different service levels, different pricing levels. We have to adjust how we're serving them to remain profitable. And that's why we're giving – still setting an EBITDA margin goal. Because as we don't want to grow for growth sake, we want to grow profitably. We want to improve the business. And so that two have to go hand-in-hand. That's why you see us outline our initiatives in three ways. So you do have to change how you operate, as you're changing your customer base, and there's a different cost to serve model for each of these types of customers. And that takes a lot of work to change. But we think we have a plan to do that.

Okay. And then last one for me on Material Handling. Can we talk about the cadence for that business? Because it seems like there's some puts-and-takes. It seems like consumers will get benefits from the new product launch throughout the year, but it sounds like industrial might have some tough comps as the year progresses, particularly in 4Q with that large customer order? And then I believe you said, the decline in food and bev will be front-end loaded, so just some color on the cadence for the overall Material Handling segment will be helpful?

Sure. I think that with the exception of the two areas we highlighted with RV and the ag portion of the food and beverage, I think we expect – we're seeing a steady pace of business there. Obviously, industrial – our initial business, yes, we do have that one, as we said, higher order in the fourth quarter, but I think that business has generally been steady. So as the year progresses, it's going to depend a bit on how the economy is doing, because it's a very much tied to industrial production and these kinds of things. So as long as that continues on some pace, I think we're seeing steady pace in that business as well. More broadly, within the group, I think there's – the team has some nice initiatives around growth in certain parts of the niche, as I highlighted in the food processing area. Albeit, that's a small part of that business right now. We think – and again, nothing of those things to offset the headwinds we have in the ag and RV, although those are fairly large headwinds. So I think it's balanced, and it's a steady pace around everything else that I'm – there's not any – I don't think we have any heroics in order to get to where we are here. But it's not some – the headwinds are large enough, and the risk around, the ag in the second half is also there. But we're cautious about that

Thanks for taking my questions and again congrats on the quarter.

Thanks Ryan.

And we now have come to the end of our question-and-answer session for today. I will turn the call back over to Monica Vinay for closing remarks.

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 greater.

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