Ladies and gentlemen, thank you for standing by, and welcome to the Myers Industries Q3 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker today, Monica Vinay. Please go ahead.

Good morning. Welcome to Myers Industries third quarter 2019 earnings call. I’m Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industries. Joining me today are Andrean Horton, Interim President and Chief Executive Officer; and Kevin Brackman, Executive Vice President and Chief Financial Officer. Also joining us on the call today and available to answer questions are Mike Valentino, Group President, Material Handling Segment; and Chris DuPaul, Group President, Distribution Segment. Earlier this morning, we issued a news release outlining the financial results for the third quarter of 2019. If you’ve not yet received a copy of the release, you can access it on our website at www.myersindustries.com under the Investor Relations tab. This call is also being webcast on our website and will be archived there, along with the transcript of the call shortly after this event. Before I turn the call over to Andrean and Kevin, I would like to remind you that we may make some forward-looking statements during the course of this call. These comments are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements. Further information concerning these risks, uncertainties and other factors is set forth in the company’s periodic SEC filings and may be found in the company’s 10-K filings. I’m now pleased to turn the call over to Andrean Horton.

Thanks, Monica. Good morning, everyone, and thank you for joining us. I’m pleased to be speaking with you today as the company’s Interim President and CEO. Before we review the results for the third quarter and our outlook, let me say a few words about the CEO transition. I first want to thank Dave Banyard on behalf of the Board of Directors for his leadership of Myers over the past four years. Dave was instrumental in my joining Myers and his dedication to the company and our people will have a lasting impact. The Myers’ Board of Directors has commenced the search process to identify a permanent CEO to lead the company. In the interim, I appreciate the Board’s confidence in me, and I’m excited to work closely with our senior leadership team. I want to emphasize a few key points that should give investors confidence. First and foremost, it is my responsibility as interim CEO to ensure that our strategic, operational and financial priorities are clearly understood and executed, especially during this time of transition. And I can assure you that our entire executive leadership team is committed to executing on these priorities. Despite the current market headwinds, we remain focused on serving our end markets, controlling our cost, executing our key initiatives and we are ready to capitalize on opportunities that may arise along the way. In short, your company is in capable hands. With that introduction, let’s get to the review of our third quarter results. Generally speaking, we continue to see softness in several of our key end markets, particularly in the Material Handling Segment. Despite these demand headwinds, we were pleased to generate a solid 10% increase in Distribution Segment revenues and our overall focus on price-cost optimization across the portfolio boosted gross profit margins,…

Thanks, Andrean, and good morning, everyone. Today, I’ll review our 2019 third quarter financial performance, including our balance sheet and cash flow. Please turn to Slide 4 of the presentation, and I’ll begin with a review of our third quarter operating performance. All numbers in the presentation reflect continuing operations. Net sales for the third quarter were $125 million, a decrease of 7% compared to the third quarter of 2018. The decrease was primarily due to a decline in the Material Handling Segment within the company’s food and beverage and industrial end markets. Adjusted gross profit margin increased 20 basis points to 31.5%. This was primarily due to favorable price-cost margin, which more than offset the lower sales volume and the charge we took during the quarter for estimated product replacement costs that Andrean discussed earlier. Our adjusted operating income increased 8% to $8.5 million for the quarter. This was the result of the higher gross profit margin, as well as a decrease in adjusted SG&A year-over-year, due primarily to lower variable compensation costs and savings from the Distribution Segment’s transformation initiatives. Adjusted diluted earnings per share were $0.15 or flat compared to the third quarter of 2018. GAAP earnings per share were $0.15 compared to a loss of $0.60 for the third quarter of last year. GAAP earnings per share in the third quarter of 2018 included $33 million of charges that we took related to the 2015 sale of the Lawn and Garden business. Now let’s turn to Slide 5 for an overview of our performance by business segment. Net sales in the Material Handling Segment decreased 14% to $84 million. The decline was driven by sales decreases across all of the segment’s end markets. The sales decreases by end market were highlighted earlier in the presentation by…

Thanks, Kevin. Before we take questions, let me close with this comment. The inherent cyclicality of some of our businesses will always be a challenge, but one, we are working to address. We are beginning to see the impact of our segmentation efforts in each of the businesses as we look to drive focus in markets that we’ve identified as key for longer-term growth. While it will take us sometime to scale these market segments, our early results are having a positive impact. Additionally, the work that our teams have done and continue to do, like rationalizing our manufacturing footprint and executing continuous improvement processes, will also enable us to perform better than we would have through down cycles in the past. In summary, we remain focused on executing our strategy and continuing our progress in serving our end markets. With that, we will now open the line to questions.

[Operator Instructions] Your first question comes from the line of Tyler Langton with JPMorgan. Please go ahead.

Good morning. Thanks for taking my questions.

Good morning.

Just had a question, I guess, on seed box sales. I guess, Q4 and Q1 are the big seasons. And I know you mentioned sort of there’s still some uncertainty, but I guess, just wondering how much visibility at this point do you have on those two quarters?

Sure. Good morning, Tyler, this is Mike. We’re starting to get some feedback and visibility from our customers. I’d say, we’ve got a better outlook on the softer demand that we’re seeing here in the fourth quarter than we do in the first – on what’s going to happen in the first. And we’ll talk about the first quarter outlook and forecast in our next call at this point. But we’ve got some visibility, and it’s similar to what you’ve seen in the past – what you’ve heard from us in the past, excuse me, on what we’re – on what we expect to happen in the fourth quarter here around the late planting season and the wetter weather. We also believe that some of the consolidation that’s happened in the customers in that space as they continue with their integration efforts, which includes looking at their fleets of boxes, assessing their inventory levels and looking at their overall product requirements going forward is having some of the impact that we’re seeing here. I guess, the last thing I’d say about what we’re seeing in that space is, we have no indications to believe that this is a shift in demand for the products long-term. We remain very focused and confident in that space to maintain our leadership position in helping our customers in that area solve problems and deliver to their customers.

Gotcha. Perfect. Thank you. And then Andrean, I guess, I think in your – the opening remarks, I guess, you said you were, I guess, open to capitalize on opportunities. Does that mean sort of during the CEO search, I guess, Myers would be willing to look at acquisitions, or should we kind of think of that as somewhat on hold until a new CEO is announced?

Thanks, Tyler. So we are going to continue to evaluate opportunities in the acquisition area. We’re obviously looking for acquisitions that complement our organic growth strategy. We’ve talked about looking at proprietary acquisitions. So those tend to have a longer process. You usually don’t have an intermediary involved, you’re usually dealing directly with the seller. There are times where you’re persuading the seller to sell. So just overall, those take a longer time. But with the guidance of our Board during this interim process, we will continue to look at proprietary acquisitions.

Okay, thanks. That’s helpful. And then I guess, Kevin, finally, on free cash flow. I know this quarter, you benefited from strong working capital gains after you saw some pressures in the first-half. Do you have any thoughts on kind of what to expect for Q4 around that?

Yes. I think, obviously, the $22 million of free cash flow for the third quarter is not a sustainable quarterly amount because of the significant reduction in receivables that we had in the third quarter. What I would say, though, if you look at our year-to-date amount, $34 million over three quarters, so roughly $11 million, $12 million per quarter. I think that is a reasonable amount of free cash flow for us on a quarterly basis.

Great. Thanks so much.

[Operator Instructions] Your next question comes from the line of Chris Sinnott with Cowen. Your line is open.

Good morning, and thanks for taking my question. I had a question about the Distribution Segment EBITDA margins. So we – would the Tuffy acquisition not have affected the 10% EBITDA margin goal that you guys have of 10% by 2020? Does keeping that 10% where it is as a target imply any change to the underlying business margins, or am I reading too deeply into it?

I think you’re probably reading too deeply into it. I – so we set the 10% EBITDA margin goal prior to acquiring Tuffy. So we’re sticking with that goal, that’s still our goal. However, we are hopeful that Tuffy will be accretive to that margin.

Okay. That’s helpful. Thank you. If I could just squeeze in one more question about the dividend. It’s a steady dividend. It’s something that doesn’t often get a lot of attention on these calls. But I’m curious about what you guys think your capacity is for ratcheting that up over time, not necessarily next quarter or even the quarter after that, but the way the Board looks out of the way, current management is looking at it, how a new CEO might think about it? Any thoughts you have on the dividend going forward would be helpful? Thank you.

We review the dividend every quarter with our Board and we will continue to do that in the future. What I would say is our focus for capital deployment in the near-term continues to be on the organic growth and M&A portions of our strategy. So that’s the focus in the near-term and we’ll continue to look at the dividend with our Board every quarter.

Great. Thanks.

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

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