Ladies and gentlemen, thank you for standing by, and welcome to the Myers Industry 2019 Fourth Quarter 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 hand the conference over to Ms. Monica Vinay. Please go ahead.

Thank you. Good morning. Welcome to Myers Industries fourth quarter and full year 2019 earnings call. I'm Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industry. 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; and Chris DuPaul, Group President, Distribution. Earlier this morning, we issued a news release outlining the financial results for the 2019 fourth quarter and full year. If you've 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 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 am now pleased to turn the call over to Andrean Horton.

Thanks, Monica. Good morning, everyone and thank you for joining us. If you turn to slide 3 of the presentation, we'll share an overview of 2019. Let's begin with a few highlights. Overall our efforts toward continuous improvement through our lean initiatives and 80/20 focus resulted in continued margin improvement, earnings growth and free cash flow of $37 million in 2019. We achieved these results despite sales being impacted by shifting weather patterns and softer end-market demand. As a result for the full year, we were able to increase our adjusted operating income by 4% despite a 9% decline in sales. The Distribution Segment continued to execute its transformation plan increasing sales by 6% for the year or by 2% if you exclude the benefit from the recent acquisition of Tuffy Manufacturing. Adjusted EBITDA margin increased 270 basis points to 8% indicating that the segment is on track to achieving its goal of delivering a 10% EBITDA margin by the end of 2020. In addition to advancing this transformation effort, the Distribution Segment continued its integration of Tuffy, which we acquired in August of last year. With just four months of results in 2019, Tuffy has already proven its alignment with our overall growth strategy and has quickly contributed to the segment's improved results. In our Material Handling Segment, we experienced a number of ongoing market headwinds that resulted in a sales decline of 15%. However, I'm pleased to report that through the team's focused effort the segment delivered solid margin improvement through price cost optimization and continuous improvement actions increasing its adjusted EBITDA margin to 21% for the full year. Now let's review some of our challenges in 2019. In our Material Handling Segment a number of our key end markets were challenged throughout the year. In our consumer…

Thanks, Andrean and good morning everyone. Today, I'll review our 2019 fourth quarter financial performance including our balance sheet and cash flow. You can find a summary of our 2019 full year financial performance on slides 10 and 11 in the appendix. Also, please note that all numbers in the presentation reflect continuing operations. Please turn to slide 4. Net sales for the fourth quarter were $117 million, a decrease of 16% compared with the fourth quarter of 2018. The increase we saw in the Distribution Segment sales was more than offset by the sales declines across all markets in the Material Handling Segment. Adjusted gross profit margin increased 310 basis points to 33.6%. This was primarily due to favorable price cost margin and productivity improvements. Our adjusted operating income decreased 7% to $7 million for the quarter. However, the adjusted operating income margin increased 60 basis points to 6.1%, despite the lower sales volume. 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 and savings from the Distribution Segment's transformation initiatives. Adjusted diluted earnings per share were $0.12 compared to $0.13 for the fourth quarter of 2018. Now let's turn to slide 5 for an overview of our performance by business segment in the fourth quarter. Net sales in the Material Handling Segment decreased by 26% to $73 million. In Andrean's opening remarks, she shared the challenges this segment faced in 2019, which we've continued to see in the fourth quarter. Sales in the food and beverage were down significantly due to lower seed box sales. The consumer end market was down due to continued soft demand for fuel containers. A weaker overall demand environment and difficult comparisons to last year's fourth quarter…

[Operator Instructions] First question comes from Tyler Langton with JPMorgan.

Yeah. Good morning, Andrean and Kevin and Monica. Thanks for taking my question.

Good morning.

Good morning.

Just on the revenue growth guidance for mid-single digits, I know sort of 50% is coming from the Tuffy acquisition. I guess on the rest, could you just talk a little bit about how much confidence and maybe visibility you have on that growth, especially, just if there's sort of an economic downturn with the coronavirus. Yes, any color there would be helpful.

Yeah. So let me talk to the coronavirus first. We source a very small percentage of our materials and supplies from overseas. So, at this time we do not anticipate a significant impact from coronavirus on either revenue or cost. However, we'll continue to monitor that closely. And if we do start to see an impact, we'll update you on that. As far as confidence in the -- yeah, I think we feel good about the outlook, the revenue outlook we gave you for each of the end markets. Obviously if we exclude Tuffy, we'd be forecasting low-single-digit growth for 2020. And I think at this time, we feel good about that outlook.

Yes, it's helpful. And then just within Material Handling, I know in 2019 that segment benefited a lot from just price cost and productivity. When you look into 2020, should we expect sort of more gains from that? Or should that largely have lapped by this year?

Yeah. So we talked about previously as we went throughout -- as we proceeded throughout 2019, the year-over-year favorability from price cost margin declined as we went through the year. It was still favorable but it was at a declining rate. We expect that those -- that declining rate to continue into 2020. So, we are forecasting favorable price cost margin year-over-year in 2020. But it won't be as significant as it was in 2019. Same thing on productivity, we expect it to continue to be a contributor in 2020. And so I think as far as margin expansion in 2020 more of it is going to have to come from volume growth on the Material Handling side. And on the Distribution side, we have the completion of the transformation initiatives as well as the Tuffy acquisition, which will allow us to grow margin on the distribution side. So that's kind of how I view margins for 2020.

Okay. And then just final question around free cash flow, I guess, CapEx $15 million you provided. Do you have any thoughts, I guess, on working capital after I guess it was used in 2019 or any other components?

Yes. So, first of all, let me address CapEx. So the way we look at CapEx is we think normal maintenance CapEx would be about 2% of our Material Handling revenue, which is roughly $7 million or $8 million. Obviously, our Distribution Segment does not have -- has minimal CapEx spend. And so of the $15 million, we're forecasting about half of it is maintenance CapEx. The other half I would break down between new product molds, productivity projects and then there's also some spend related to the consolidation of facilities in our Ameri-Kart business. So that's how I would break down the $15 million of CapEx spend. As far as working capital when I look back to 2018, we had $55 million of cash flow. I don't think that's a sustainable amount where we are as a company and so that was unusually high because we had really low CapEx spend in 2018 and we also had a significant like an $8 million benefit from working capital in 2018. The flip side of that is I think the $37 million that we did in 2019 I think we can do better than that. We -- because of the lower sales volume, our volume with our outsourced vendors declined significantly in 2019 and that had an effect on payables. We also had lower variable compensation accruals. And so the working capital kind of swung the other way on us in 2019. I've said before, I think on a quarterly basis, I think $10 million to $12 million of free cash flow per quarter is a sustainable amount for us.

Great. Thanks so much.

Next question comes from Josh Chan with Baird.

Hi good morning. Thanks for taking my questions. I guess my first -- my first question is basically on the cadence of demand within Material Handling, I guess given sort of the tougher second half of 2019. Could you just kind of talk us through in terms of the growth that you're expecting in that business? How that might kind of phase through the year in 2020? It seems like the second half is going to have some pretty decent growth, but just kind of want to see how you're thinking about the cadence there?

Sure Josh. Good morning. This is Mike. Let me -- I'll kind of walk you through that -- through each of our end markets. So, on the consumer side, we anticipate seeing improved end-market demand and Kevin and Andrean both mentioned this in their opening statements, primarily due to the wet launch of the lawn and garden season last year in the spring. So, we would expect to see some recovery in that in the first half of this year. On the food and beverage side, if you remember our seed season runs fourth quarter to first quarter. So, we anticipate the improvements that we're going to see in the food and beverage end markets primarily in the latter half of this year. On the vehicle side, we talked about we see favorability in the inventory levels out in the field on the RV side. But that probably won't be enough to offset the softness that we're seeing in the automotive end markets due to lower model launches, as our teams work to expand share there. And on the industrial side, I'd say, we're going to see modest end market improvement, primarily driven by our focus in e-commerce and expanded presence in sales channels that we'll start seeing after the first quarter of this year due to a tough comp that we've over -- we need to overcome from last year. So hopefully, that gives you some texture into each of the end markets and what we're thinking about.

Yes, yes that's great color. Thanks Mike. Just curious, did you see any kind of inventory destocking in Q4 or even into kind of early Q1? Just with all the kind of jitteriness around the macro market in some of your distribution customers, did you see any changes there?

This is Mike again, Josh. I'll address it in the industrial space and then I'll see if Chris wants to add anything in -- on the distribution side. I'd say, we saw a little bit of it with some of our industrial distribution partners in the fourth quarter, but we don't expect that to have a significant hangover effect into 2020.

This is Chris speaking from the distribution side. I mean, we certainly saw in the tire market destocking from the tires themselves that's not our direct end market. But from our end our customers did show a little bit of a slowdown in Q4 and we saw that both in our demand as well as in some of the public announcements that were made as companies have reported earnings.

Great. Yes. Thank you for that. And then just a last question on cash usage I guess, how are you guys thinking about the capital deployment? Is that something that might be temporarily on hold until the new permanent CEO is identified? Or would you be able to take advantage of some of the recent stock price weakness and maybe kind of -- get a little bit more aggressive on that front?

Thanks for the question. This is Andrean. No, our capital deployment isn't on hold. We're continuing to evaluate potential acquisitions that would complement our existing portfolio, so we are not waiting for the new CEO to join to do that. But as we've mentioned previously at this point, we are focused more on proprietary acquisitions and those tend to take a little bit longer. The process is a little bit longer. So, we're continuing to evaluate them.

Okay. Great. Thanks for the color and thanks for the time.

[Operator Instructions] We have a question from Chris Sinnott with Cowen.

Good morning. Thanks for taking my question. Almost, all my questions were actually answered already. So I guess, one last thing I would ask is, in industrial, you talked about growth in e-commerce and then expanded market coverage. So, do you mean that the e-commerce is expanding market coverage? Or is this new sales people in new territories more boots on the ground, if you could just unpack that a little that would be helpful? Thanks.

Sure, Chris. I think you should think about it from both sides. We've got a team that's focused on growing our e-commerce business into additional market segments. And we've also added some variable cost sales commissioned agents throughout the industrial side of our business to help us expand deeper into additional customers and channels as well. So, I think you can think about it from both sides.

All right. That’s helpful. Thank you.

[Operator Instructions] And we do not have any telephone questions at this time. I will turn the call over to the presenters.

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

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