Monica Vinay - Vice President, Investor Relations and Treasurer Dave Banyard - President and CEO Matteo Anversa - Executive Vice President, CFO and Corporate Secretary Kevin Brackman - Chief Accounting Officer.

Adam Josephson - KeyBanc Gabriel Hajde - Wells Fargo Matthew Paige - Gabelli & Company Chris McGinnis - Sidoti & Company.

Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Myers Industries Incorporated Fourth Quarter 2016 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, you may begin your conference..

Thank you. Good morning. Welcome to Myers Industries’ fourth quarter and full year 2016 earnings call. I am Monica Vinay, Vice President of Investor Relations and Treasurer for Myers Industries.

Joining me on the call 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 2016.

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. The 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.

For further information concerning these risks, uncertainties and other factors is set forth in the company’s periodic SEC filings and maybe found in the company’s 10-K filing. I’m now pleased to turn the call over to Dave Banyard..

Thanks, Monica, and good morning, everyone. We’ve got a lot to cover today. I am going to start on slide three which is our agenda. So I’ll outline that since we have so much to cover. I am going to start with just one slide taking a look back in 2016 on some achievements and some challenges.

And then I am going to turn it over to Matteo to go through our detail financial review and our 2017 outlook. And then he is going to hand it back to me and I am going to spend some time going through our strategic plan and our vision for the company and we are going to finalize that with the long-term target that we set for the company.

So switching now to slide four, 2016 was a transition year for Myers and I am going to go through some of the things that we accomplished in the year. First and foremost we started building a foundation for the future for this company.

A couple of key parts of that was building a management team at the senior level and in fact, I am pleased to welcome Matteo here, this is his first call as CFO. I am excited to have him here. But beyond that we built a senior management team here that we are very pleased with and very excited about.

In addition to that, we focused on a lot of fundamentals in the year. One thing I want to highlight that I think is a critical fundamental to any business’ accounting control, lot of work and investment went into that this year and we did a super job in really building what we need for a finance -- a foundation in that area.

In terms of strategy, we also spent a lot of time focus on strategy and we are going to go into a lot of detail on that later on in the presentation.

But just a couple highlights from the year in terms of where we are finding some wins, our vending machine and our auto dealer strategy within the Distribution business we have some nice wins within the year. Within our Scepter business we had some nice wins in the marine aftermarket business as well.

A lot of that’s not going to move the topline very far in 2016 or didn’t move the topline very far in ’16, but these are areas that we focused on had wins that should produce results for us in the future. In addition to that, we spent a lot of time strategically looking our cost base and how we function operationally.

Like I said, I’ll go in a lot more detail in that later, but we do a lot of good work on that in 2016 as well. And a result of that is our focus on cash, I think we did a great job in 2016 on cash and we are going to continue to focus on that moving forward. We’ve been able to return that to shareholders.

And also we set ourselves up just from a flexibility standpoint by what we announced this morning which is an extension of our existing loan agreements. Now we did have some challenges. I will talk both externally and internally on the challenges.

Externally, with weak capital spending environment in a couple of our really key markets, notably, in Agriculture and in the capital spending side of our Myers Tire Supply business. We’ll talk a bit more about that and how that bodes for 2017. Internally, we have some challenges as well as those volumes came down, we saw some operational inefficiency.

We are taking steps to address those. But we also saw sales declines in our Distribution Segment resulting from changes that we've made with our sales force and I think that we've taken some -- we’ve taken some tough decisions there and made some significant progress in the year, but there is more to come now.

So with that, I am going to turn it over Matteo now to take us through the financials for 2016..

Thanks, Dave, and good morning, everyone. First of all, let me start by saying that again very happy to be here in Myers and I look forward to speaking and meeting all of you in the upcoming quarters. So today I will discuss with you the 2016 financial performance and then we will go through the 2017 outlook.

So if we turn to slide five of the presentation and I will walk you through an overview of the fiscal year ’16 performance on a GAAP basis and all the numbers in the presentation reflect our continued operations. So starting from the top left, our net sales declined 7.2% to $558 million compared to $601 million in 2015.

Excluding the impact of foreign exchange the decrease in sales year-over-year was 6.7%. The decline was primarily due to continue weak demand in Material Handling Segment particularly around the agricultural products and lower retread and equipment sales in the Distribution Segment.

Gross profit margin was roughly flat year-over-year due to lower one-time costs. One-time restructuring costs declined by $1.6 million compared to last year.

However, operating income was negatively impacted by impairment charges of approximately $10 million, mostly due to Brazil and as you may recall these impairment charges was felt in the first quarter of 2016. GAAP diluted earnings per share were $0.05 compared to $0.45 in 2015.

As we turn to slide six, we will give an overview of the key variances and maybe adjusted basis. Starting from the top right, adjusted gross profit margin was 29.5% in 2016 compared to 29.9 last year corresponding to decline of 40 basis points.

The reduction in gross margin compared to last year was due mostly to lower sales volume and unfavorable product mix due to the decrease in agricultural sales, as well as some operation inefficiencies primarily related to lower sales volumes. Adjusted SG&A was $135 million compared to $143 million last year.

Year-over-year decline of $8 million or 5.5% was the result of cost reductions at both the segment and corporate level. We reduced our corporate headcount by almost 15% during the year in an effort to improve our operating efficiencies and mitigate actually the impact of the sales reductions due to the market dynamics that I just last spoke about.

Cost reduction initiatives will also in 2017 as we persistently assess the company cost infrastructure. Adjusted op income declined by $7 million or 20%.

Most of the decline year-over-year was driven by the reduction in sales and negative mix effect due to the decline in agricultural sales as well as the manufacturing efficiencies due to lower volumes. And this was -- these two effects were partially offset by cost reduction that I described before.

So adjusted diluted earnings per share was $0.44 compared to $0.57 in 2015. If you turn to slide seven, I will walk through the details of the two segments, starting from Material Handling on the left side of the page. In Material Handling our sales declined 6%.

The reduction in sales was driven by the decline in agriculture partially offset by increase in manufacturing. Beverage in Brazil also declined in 2016, while we had strong growth in vehicles, thanks to automotive and RV. Adjusted op income in the segment declined by $12 million or 24%.

The reduction was primarily the result of lower volume, unfavorable mix due to the decrease in agricultural sales and some manufacturing efficiencies due to the lower sales volume partially offset by SGA& sales. Now moving to the right side of the page, Distribution, sales declined by 9%.

The year-over-year decline was primarily due to lower equipment and retread sales due to market decline, as well as an impact of the sales force reorganization process that we completed in 2016. I would say that in spite of slight growth in miles driven we continue to see softness in capital spending in the retread business.

The decline in equipment sales was partially offset by growth in our dealer supplier sales and we also have good share gains in our vending machine program which will have our margins moving forward. Adjusted op income in the segment declined by almost $4 million or 23%.

The reduction was primarily the result of the sales decline, as well as operating inefficiencies in one of our businesses partially offset by better mix as we increase our focus in selling our consumables. SG&A also declined due to the lower available compensation costs.

If we turn to slide eight, I will discuss the balance sheet and cash flow performance for the year. Free cash flow was $21 million or 17% lower than 2015 and the reduction was primarily due to the change in payment practices in 2016 that Dave frequently talked about in the prior calls.

This was in line with our effort to stabilize our working capital performance. If we adjust for this impact actually free cash flow would have been higher than last year despite to the lower EBITDA.

This improvement was driven by a reduction in capital expenditure by 47% and we will continue to be discipline in our spending in the future as we seek to maximize cash flow.

We also think that this new low capital spending profile is sustainable moving forward as we continue to focus our attention in building better processes and maximizing the use of the capital that we already have.

Additionally, we improved our working capital in a number of areas particularly with regard to lower inventory in the Material Handling Segment and all across the company our turns improved by 0.9 points and our inventory for the company was down 15% as we continue to deliver on our objectives to eliminate the capital that we do not need.

Working capital as a percentage of sales closed at 8% compared to 3.5% in ’15 and the negative change is also driven by the accounts payable phenomenon that I just described. As of the end of the year, we have cash and cash on hand of about $8 million, an increase of 8% compared to last year and net debt of about $182 million.

We slightly reduced our gross debt in spite of the decline in sales and this is really thanks to the increased focus on cash generation all across the company. Our leverage ratio closed at 2.9 slightly higher than last year due to the lower EBITDA and as Dave mentioned earlier in the presentation, we negotiated a new loan agreement with our banks.

They will provide us with more flexibility in executing some of the elements of our strategy that Dave will discuss later on in the presentation. If we turn to slide nine, I will provide you another view of the current market conditions in our segments, as well as 2017 market outlook.

If we look at our sales breakdown in ’16 compared to ’15 by end market, the main changes occurred in vehicle as we continue to see positive volume growth in automotive and RV. Conversely, we saw steep decline into the beverage due to the weak capital spending environment particularly in agriculture and in Brazil.

Now if you turn to 2017, we are forecasting flat sales for the year on a constant currency basis. Specifically, we are expecting growth in consumer through share gains particularly in sector.

Thanks to some of the commercial wins that we had during 2016 and I will say that based on the trend of the first two months of the first quarter we confirm this forecast. We are expecting food and beverage to decline as we continue to see lower demand in agriculture. We see some catalyst of improvement in agriculture but not before 2018.

We continue to see strong demand in RV and automotive and the first quarter is confirming this strength.

Our Myers Tire Supply sales growth to generate positive momentum in all of the market, in the first couple of months the core -- all of the market is performing actually a bit worse than what we were expecting, but on the other side industrial is slowing -- is showing some slight improvement.

If we turn to slide 10, I would just add a couple of key assumptions that we are making for 2017 and as you can see from the page, most of these assumptions reflect similar levels to what we experienced in 2016. So we are expecting sales to be flat year-over-year.

We providing a slight decline in the first half due to agriculture and then year-over-year increase in the second half as agriculture becomes less of an important component on our writings. CapEx will be between $10 million to $12 million in line with our effort to become a less capital intensive company.

Interest expense will be in the range of $8 million to $9 million in line with 2016. D&A will be between $32 million and $34 million. And tax base is we would expect normalize ETR to be in the range of 36%. So, with that, I would turn the call back to Dave for the discussion of our enterprise strategy and our long-term performance target..

Thanks, Matteo. So turn to slide 12, I am going to start with the big picture, what are strategic vision.

There are really two key elements to our strategic vision, our culture and our business model and that’s what depicted here on this page and what I am going to do is talk briefly about them here and then we are going to go into a lot of detail on all the elements of it.

For the cultural standpoints, culture is really what our people bring to the table and how we are going to function as a team and that’s encompass here on the top and at the bottom, right, in safety and efficiency and everything we do and acting like owners. I will take a few minutes here to explain what I mean by that.

When I talk about safety and efficiency and everything we do, those are -- safety is a great foundation for continues -- for our continuous improvement culture and we started that here. We have had a good history of that. But I think we have even added further to that this past year.

And if you think about efficiency that's what it's all about when it comes to continuous improvement. So the top statement there is talking to our desire and the culture to be constantly focused on continuous improvement. And we don’t want to just do that internally, we also want to bring that to our customers.

We believe that that’s part of our competitive advantage that we can bring our culture, safety and efficiency not only internally but also out to our customers and the products and services that we offer. Now acting like owners really what that’s talking about, not just about how we treat our assets and how we function as a group internally.

But it’s the time horizon that we think about when we want to talk about our culture. We are not focus just on one quarter at a time. We as an organization want to be thinking about the future and making the right decisions for the long-term.

And again it’s an internal focus for our team here to make sure making the right decisions for the enterprise for the long-term but it’s also external for focusing on the long-term for our shareholders and for our customers and that’s a key tenant of our culture that we want our external stakeholders to be a part of as well.

So the culture are the bouquet that holdup the strategy and that’s what we depict here. In the middle of that is our business model.

And as I said, the business model is how we intend to deliver shareholder value and there are three key elements to that that we are going to go into a lot of detail here on, our niche market focus, flexible operating and strong cash flow growth. Now just briefly, in niche market focus a couple of elements of what I mean by that.

We want to be and expect to a number one or number two in every served market that we are in. You do that with strong brands and you do that with strong customer intimacy. From a flexible operations standpoint we want to make sure that our operations are aligned with that niche market strategy and that they are simplified.

We use tools like 80/20 and lean to help do that and we are very process focused, continuous improvement as I said from our culture, continues improvement is how you continue to get there and only doing the things that are critical to delivering that value to those niche customers.

The result of those two elements of the strategy is strong free cash flow and at corporate we intend to take that free cash flow and reinvest it in great opportunities either through internal or through M&A type investments into the future. Switching to slide 13 now.

I want to go into some detail to explain a bit about how' this business model works and I have got the three elements outlined here. I am going to walk through the process that we are going through in each of these, because again this is a vision for us, we are not there today, but we have a plan on how to get there.

So these are the steps that we are taking in order to achieve this vision. On the niche market focus side, its starts with segmenting the market and really understanding where you are and where you are going to play. I mean that’s learning with the playing field. From that we want to sell what we have.

We want to really take those markets and drive further in and penetrate further with share with the products that we have and then from there once we have learned and really understand that market then we will innovate.

So I think in the past we have perhaps gone about the other way around and try to innovate first and we are going to do that little bit differently and I will go in a more detail on that later. The whole point of these steps is to build sustainable competitive advantages in the market that we like.

When it comes to flexible operations, the first step is to simplify and focus, get the organization aligned around what we are trying to accomplish. Sometimes and in the case -- in our case you have to restructure at the moves and pieces around and we are doing that this year and I will go into more detail on that.

Once you have done that then you can start using the lean tools to really drive efficiency and productivity within the organization and again the end result of that is strong improving of our existing cash flow.

When it comes to free cash flow, its starts by incentivizing people and getting the organization along around that being the key metric that we want to focus on. From that and through the other two actions we are taking around the other two parts of the business model, you work on asset light operations and making the organization more nimble.

Once you have got that and you are using and you’re developing this stronger free cash flow we intend to take that and put an acquisition strategy to work to continue to compound the growth of our cash flow and the end result of all that is that we will deliver above market returns for our shareholders.

Now for the next couple slides, we will switch to slide 14 now. I would like to go over how we are going to implement this strategy. It’s in the near-term over the next two years, 2017, 2018. How we are going to execute on the elements of this business mode.

I used the word execute, because, you can have a strategy but you got to execute for to be successful and that’s -- to me that’s the critical part of any strategy the execution phase. So I want to spend some time here going into detail about how we intend to execute on these three elements of our business model and our strategy.

So starting on slide 14 here. You can see we have organize this by with the different brands under each of the different factor -- parts of our business mode, because each of the brands is in a different stage in terms of where we are in achieving the vision.

And so starting over on the left side with the niche market focus, we have got a couple brands in here with Myers Tire and Scepter that are ready to grow. These are businesses that have efficient operation. They understand the markets that they are in and they are really ready to grow.

So with Myers Tire, we are focused on our sales force effectiveness. We have great product management there. We have got a product set that are second to none in the industry, but we have got to work on our sales force there and that’s what we have been working on in 2016 and we will continue work on ‘17 and ’18.

Regarding Scepter, that team has done a very nice job of selling what they have and now it’s time to really innovate. We understand the customer base there. We have spent some time getting more comfortable with that through 2016. Now is the time that we innovate to really drive additional growth within that business.

Moving to the middle, these businesses also have great niche opportunities and we have aligned ourselves around those, but they have to do some organization work first to get the operations aligned to help us be able to grow.

Now some of these in some cases I outlined in the middle are some hard changes and that’s going to take some time and that’s why we have them in this area for the next couple years, because we want to make sure we take the right amount time to focus and get this right.

As I said, each of these businesses still has dedicated resources and niche opportunities. We think there are some great niche opportunities within these brands. But first we’ve got to make sure that we get the operations focused in the right direction and that’s what we intent to do over the next few years.

You can see the tools that we are talking about here under the heading. Moving further to the right, we are now up to corporate and really corporate is not an operating group, it’s a policy group and it’s also that the place where we make the decisions on capital deployment.

So we're focused on what to do with that strong cash flow and you can see that we are going to be focusing on paying down debt and then we are in the early stages of an acquisition funnel and we will talk a bit more about that in a minute. Switching to slide 15 now.

Let me go into some detail on the niche market growth strategy and how we intend to win here. I have listed the steps in more detail about how you go about winning a niche market focused environment. You started top by defining your market segment. This is as I said earlier is the defining the playing field and we did a lot of work on that in 2016.

So I think we have a much better understanding coming out of 2016 of the dynamics of the various markets that we play in.

From that you have to orient the organization and the way we do that is we have dedicated teams that are sized appropriately for the opportunity that really have nothing else on their plate except the focus on that particular market segment and how to go win with the products that we have.

In 2016 we’ve dedicated seven teams to that and they are in a variety of different sizes and shapes throughout the different brands. These teams use a data-driven approach and other things they use a price and service level to differentiate throughout the different opportunities they have.

The idea here we are running the organization this way is to move away from trying to be all things to all people.

When you are doing a niche market strategy, I want to make sure you really understand the market that you're playing in and that you are spending all your time on that and not just trying to fill up the factory with sales that come your way.

Once we have that it’s time to go further and really focus and try to gain more share within those particular market segments and that’s what our goal is for 2017. As I said earlier, we have made some progress on that with our MTS business and with our Scepter business, some of the other brands are just starting to do that.

The idea behind this is to get some sales and be more fast and effective within those segments, but also to learn so that we know where to innovate and grow into the future.

You can see innovation now comes further down the list once you've established yourself with that customer intimacy through selling a lot into that particular market segment then you're ready to innovate.

And as I highlighted on the previous slide, not all of our businesses are ready for that and so it becomes a distraction if you are trying to do that without having all the knowledge that you need.

Finally, once you finish that and you’ve establish yourselves then you can start looking for expanding to spots around that particular market segment and move on this, basically a repeat the cycle type of methodology. I thought it would be a good point here to give you a couple of specific examples.

This is a lot of the process and how you go about doing this. But a tangible -- a couple of tangible examples of where we have been successful this in past and where we are focused in the future will help you understand how we are going to move forward and execute on this type of a strategy.

So I’ll start with the [ph] C-Box (27:41) it’s a -- and obviously it's been challenged, as Matteo highlighted, because of market dynamics, but all the fundamentals of that product fit this model right here. It solves the customer specific need in a very specific niche. We have very good understanding of that. We are very committed to it.

We have a dedicated team that is focused just on that and those customers and making sure we understand what they need and can deliver it. Now the market is down, so it’s not a great story at the moment. We need to be able to handle that cyclicality.

That’s probably the piece that was missing in the past, but once we have that it’s a great market and it's a great business for us and we -- when it comes back we expect that to be a nice piece of our niche market focus. Another example is our vending machine program at MTS, so we have some success with last year.

It’s solving a specific need in the market that we identified and indeed we were the first to market with that and it really helps customers -- solve the customer problem and it helps us also become more integrated to our customer's operations so that we can continue to further help them with a broad range of products that we have.

Now the couple of other businesses and Scepter as an example, that team has done a great job of really understanding their customer needs at the retail level and really understand what those large retail channels need from us and renting our operations to serve that well and that really showed up as we were able to gain share through 2016 in that business.

Now in the past we have talk about innovating with that and so that’s where Scepter has some of the bit so we focused a lot of our energy and time throughout the winter building process for innovation with that company, because we believe our customer intimacy within that channel really has an advantage for us and that we can figure out way to really gain share through innovation.

That’s our plan moving forward there. Lastly, I will highlight the RV business. It’s a business that we have been in for a long time. We have re-landed our group there to have that singular focus on making sure we really understand that market.

But that’s the business that needs -- that have some challenges operationally and so we realize that though we have a great dedicated team there and we are ready to start going after taking more share, we need to first work on improving our operations and being more efficient and flexible in those operations before we are able to tackle that.

All four of those are examples where we think we have growth opportunity that’s built into our strategy and built into how we are going to achieve the target as we look forward. Next slide, on slide 16 now, I am going to spend time on the other two elements of the business model and the strategy, first with flexible operations.

As I said earlier, the goal here is to simplify the organization and align it with the niche market strategy. Now the initiatives you see on the page here will save us mind, that’s -- and that’s a key part of it.

So it’s about that too, but I want to make sure that everyone understands the realignments we are talking about on here are not just cost cutting efforts. They are strategic efforts to realign how we think and how we operate as an organization and as enterprise.

So, going into a little bit of detail here on the 2017 and 2018 actions here, we are going to be investing $10 million in 2017 or roughly $10 million I should say to reduce the operating footprint. We expect the annual savings be approximately that same amount and that will kick in once the projects are done.

We expect these projects to be completed within year 2017 and I specifically say that -- and that we are going to take the time necessary to make sure that we do this the right way both for our customers, as well for our -- as well as for our people and to make sure that we do this in a way that’s not disruptive to the business.

So it’s going to take a little longer than maybe other people do with their restructuring efforts but we want to make sure we get this right, because it’s a fundamental shift in how we are operating and so you get a strategic shift to be less reliant on vertical integration and more reliant on things like strategic sourcing partners which you see on the page here as well.

Our goal is to have partners that can help us do the things that we don't need to do internally and by doing that we are not only increasing our flexibility but also we are reducing our need to spend cash on capital spending internally and we can still grow despite having a lower capital spending profile.

That allows us to use that free cash flow for other things that I will get to here in a minute. Obviously, we have also reduced some headcount elsewhere in the organization. Our goal is to have a very efficient and lean corporate that has great expertise of the things we need to be expert at and everything else out into the businesses.

When you have a niche market strategy the idea is to have the business brands have the decision making as much as possible because they are going to be closest to the customer. Corporate is going to be a policymaking body.

The other advantage of corporate is that for a company our size we can have certain expertise in a consolidated arena at corporate that would help focus out in the field, they may not be able to afford because of the size of their P&L.

So this is really the two functions of corporate and we realigned ourselves in the fourth quarter to conform to that. Now lastly on the strong free cash flow.

Really the key here is how we deploy our capital moving forward and the goal is to have an M&A strategy where we are deploying our capital towards buying targets that have a strategy that fits within our existing vision.

So in another words we are going to be looking at target that have a niche market focus and that already have flexible operations, so they are additive to achieving our strategy and then additive to compounding our cash flow growth over time. To give you a couple of indications of what we are talking about. This is the process.

We have already started that process. It requires time to build the funnel and we have a very solid funnel building here, but it’s going to take time over the next year and couple of years really to keep that funnel full and to really fully evaluate this kind of targets. We are looking at wide variety of things.

Everything from transformational type of M&A to smaller targets that fit within what we are doing today. So these targets are not only things that fit nicely within the types of businesses and end markets we focus on today but we are also considering perhaps a third segment type of M&A transaction into the future.

And again there is a wide variety of different things that we are looking at and these sort of things take time to develop and we’ll keep you appraise as they come -- as they move forward.

The key thing I want to make sure everybody understands, we are talking about our M&A is that these businesses are going to be ones that bring our strategy forward and help us achieve our vision of having a niche market strategy and flexible operations. So there are going to be things that have market segments of less than a $1 billion.

There are going to be -- one of the aspect is we've seen over the past years is that a lot of our businesses exposed to our customer's capital spending profile, so we are going to be looking at opportunity to maybe change that and help the aftermath that affect on our organization.

But all of these targets are going to be things that have been asset like business models, so they are additive to our strategy and helping us to achieve that vision. With that, I would like to switch to slide 16, the next slide here and talk about our long-term targets. Now I want to make sure we are clear.

Some of these are stretched and some of these are guideposts. So I'll talk a little bit about that. But a couple of other points, ahead of this is. First and foremost, we are aligning our management compensation with these targets. So I feel that is back to that culture of ownership.

We want to make sure that we own these targets and we are going to be compensated if we can achieve them. The other part I want to highlight on here, this is not -- we are not issuing guidance, we haven’t changed our model on that. This is -- these are targets.

This is our -- what we expect to try to achieve with implementing our vision through the future. So we’ve given you a couple of snapshots of a couple years out to show you over our five-year time horizon for our strategic plan what we are targeting for improvements within the business.

I will highlight a couple of the targets themselves and explain why we have chosen these particular metrics. So operating income margin, we highlight this, so along with EBITDA as measure of economic value add for each of the segments that we have.

We feel that this is a great way for a business manager, a leader within a business to measure themselves from a performance and so we want to focus on this and as you can see we were expecting -- what we are targeting I should say over the next five years to double our margin there.

Free cash flow as a percent of sales, it’s I’ve talked about cash throughout my time here. It is a critical measure for us, so we are going to measure ourselves and improve on that as we go here.

And I think this is a key measure of performance across the Board for us and again we are also targeting, doubling -- more than doubling that into the future. Now working capital and the leverage ratio, as I highlighted earlier, these are guideposts.

We want to just give you an indication of that we want to stay within a certain range as we are improving on all these other things and what that allows is every strategy in my view should have a vision but it should also have very solid boundaries of where we will go and where we won’t go.

And so what we are highlighting on here are some of those boundaries and we want to try to continue to target being less than 2 on our leverage ratio and less than 9 on our working capital.

Does it mean we won't go outside of those for various reasons? Obviously, for M&A, we may have to go outside of that leverage ratio for a period but we will always be try to work our way back towards that. And then as I highlighted earlier, the EBITDA goes hand-in-hand with the income -- the op income margin.

And the point here is to show that we do want to have growth. We are not just focused on cost here. There is growth attached to our targets and we think that’s important to add value down the road as well. So, with that, that’s all we have from prepared remarks. I think we can turn over to Q&A..

[Operator Instructions] Our first question comes from the line of Adam Josephson from KeyBanc. Your line is open..

Thanks. Good morning, everyone..

Hi, Adam..

Dave or Matteo, yeah, just about the targets.

They include significant margin expansion, obviously, despite the fact that you've been experiencing pretty notable sales weakness over the past couple years and I am just wondering how you expand margins that significantly with presumably continued week volume, obviously, you were not able to last year, just given the volume weakness? And relatedly there were no sales target that accompanies these other targets? Are you expecting any sales improvement in the years to come or any -- help along those lines would be good?.

Sure. Let me break apart your question into two parts. There is no sales target on here and that’s a conscious decision. And the reason it’s a conscious decision, Adam, it -- I don’t want sales at any cost. So, in other words, a niche market strategy doesn't value sales growth above all else.

It values cash flow growth and that’s part -- the three elements of our business model that’s what we value. Now that being said, in order to achieve these targets we do have to grow. So it's not as I highlighted, it’s not a cost cutting only model. It is -- it requires growth.

What I want to highlight on here is that the more important is the growth -- is good growth. Is that niche market growth where you can take the contribution margin that you are getting and have a lot of that or all of that flow to the bottomline. That's how you achieve the margin expansion type goals that we are setting here.

So there is sales growth, it have should, but that’s not some I am not going to pay people and our organization to grow sales and sales along. You will never see that kind of objective for anybody in our teams. So that answers your sales portion..

Yeah..

Let me talk a little bit about where that’s going to come from. So why do we think we can do this. First and foremost, we are going to be spending 2017 on that center section of the strategy around flexible operations changing how we -- our organized operationally is our enterprise. That’s a cost take up portion of that. That helps quite a bit.

But it’s also allows us to be more flexible in terms of the growth and it takes away a big fixed cost element of it. Now obviously there is nothing comes from free, suppliers have to make profit and we intent to have good partnerships with our suppliers and we want them to be profitable.

But what we are doing is we are making it more variable and we are finding people that are better at things that we -- than we are and so sensibly when you do that you make things more efficient and therefore cheaper. So that’s on the cost side.

And then beyond that that when you start using and really or aligning your organization from a niche market focus along with the flexible operation you can really start driving lean tools to drive additional performance improvement.

That cultural element is something we are going to be -- we started in 2016 and we are going to continue to build on that through ’17 and ’18, and that’s you are going to see a lot of growth from that.

From the topline growth standpoint, couple key areas that I have highlighted is, first of all, orienting our organization with these we will call them tiger team or market focus teams, you get growth from those teams executing.

So we're finding these niche pockets where we are going to focus a lot of our energy and that's going to drive sales growth in a couple spots that are highlighted in my prepared remarks there about things like the seat business. I mean, I think, there are some catalysts that should yield some growth for that business out in 2018 and beyond.

Our MTS business is an area where, I think, there's a lot of growth opportunity there. We have had our challenges with that business but that's all a lot of that has been because we have been making changes and there are tough changes to make and that's cause some turnover.

But once we have that turnover finish we have the best products in this market second to none and it’s the matter of getting that sales force functioning well. So those are two areas that we think we can grow and that’s going to add. As we grow without adding a lot of our overhead which we don’t think is necessary.

We are going to see these kinds of margin expansions.

That answers your question?.

Yeah. No. It does. Thank you, Dave. And just relatedly, you're guiding for flat sales this year. So the focus on niche markets that you are talking about and the eventual sales growth that you are talking about, you are not going to see it this year, right.

So you will see it presumably starting next year?.

You are talking about sales growth portion of that?.

Yeah. Right. The guidance has no….

Really the challenge we have this year is that the farm income trajectory has continued down through ‘16 and that doesn't bode well for ’17. You can always, I think, farm income from prior year tells you how farmers are going to spend in that coming year.

So we are expecting and we are seeing and this is the busy time of year for us -- our ag business and it's off. So we are going to start in the whole of that here in the first half, because of the ag business.

But then this niche market focus we will make up for some of that in the back half, so that’s where we are expecting to see and we are seeing a little bit of pockets here and there that with things like the industrial businesses are doing better than we would have expected and so forth..

Got it.

And just relatedly, Dave, how would you characterize customer inventory to see [ph] balances (44:07) at the moment?.

I think they have -- I think they are operating from a replacement mode at the moment, not a growth mode. So fixed -- what we are seeing spare part sales, we are seeing kind of end of life replacement type sales. We are getting and this is the good news if you will and is we are sort of reaching that replacement cycle volume of that.

But there are few catalysts in the future that we will talk to later in the year that I think might have spark some growth there. There is a couple of other factors within that market which none the least have which is the M&A that’s going on there that is also a distraction.

So you have got a couple of negatives in the market itself that make it tough..

Right..

But that should get flushed out in 2017..

Thanks. And then on the industrial side, you talked about industrial being a little better year-to-date, obviously we have seen the ISM PMI rock it have crossed to 58 now.

That your tone seems to be indicating a much different environment than that, notwithstanding the modest improvement that you talked about year-to-date? I mean, what are you seeing in the industrial economy and does it bear any resemblance to the 58 on the ISM that we've all seen?.

Yeah. I think, the, I think, it’s -- there is a couple of elements that we play in there. So we have what we call the industrial business there. But you should also cut vehicle in that, because automotive I think is weighs heavily nice and RV I would count as an indicator in there as well.

We have seen positive growth in automotive and RV over the past 12 months, that’s been a solid thing, I think, automotive is probably reaching its ApEx, but it’s still strong.

And all the associated manufacturing that goes with that, I mean, a huge part of our industrial economy still, if you think about the manufacturing has not been completely offshore it’s -- there is still lot of automotive and the supply base along with it.

And so that’s, I think, those have been positive, but we are also seeing through our industrial distribution channel. They had a good start to the year and I think there's -- that’s good. I mean, it’s a -- if that more aligns with the ISM, we just didn't coming out of 2016 we didn’t necessarily think that that is going to have that kind of lift.

So we are seeing a little bit of start to the year there. Conversely, it’s -- we are seeing some that the -- part of aftermarket side is a little worse and that’s really a lot of that’s focused in the northern states.

We have a -- one of things we have really done a great job with over the past 12 months within that business is get better information and data and not only for us as managers but also for our sale team on field and as part of systems investments that we have been making.

And really we are able to see trends a lot more there and the trend where you would expect to see good business this time a year is in the cold water states and it’s -- it hasn’t been there. So that's kind of a -- those are kind of counterbalancing I would say..

Got it. And then just couple more Dave. Thank you. One on CapEx, I know you said, you think current CapEx levels are sustainable? Obviously, they are well below D&A and even well below depreciation by itself.

So and I think CapEx to sales was right about 2% last year, which was considerably lower than it was over the preceding four years or so? So can you help us why you think these levels are sustainable?.

Well, it goes back to our strategy. Our strategies have flexible operations and by default you make much tougher capital allocation decisions there.

You look for other people that can do what you have been doing vertically integrated and find those partners to do that for you and then not paying the capital and yes it does require as I said some variable cost addition you are paying for one way the other in some extent. But it’s not fix at that point. We have not ever operated that way before.

We have always operated that capital was a bit more available wherever and whenever and that's not the way we operate. So we’ll move this year and moving forward. So when you look at our base of capital we’ve spent a lot of the past years.

We have a lot of fairly new equipment and we don’t need all of it and we don’t need to be doing everything we have been doing. So, I don’t add together, I think, we are on a trajectory that we don’t need to having that kind of capital moving forward..

Thanks. And just lastly on the Distribution business the sales force improvement initiative that resulted in lower sales.

Can you just talk about what exactly happened there?.

Sure. Let me give you a couple of stats, I think, to help -- maybe add some clarity. The -- so the market was a big challenging and if you think about the types of customers we have there.

When times are not -- when times are little tight, the first thing that goes is capital spending and there is -- in terms of cost in many businesses, but these small independent folks. We may not seeing a lot customers willing through their or sort of the flat pace. They are not going to invest lot of capital.

So we saw our equipment sales go down quite a bit last year. The retread market took a big hit through the commodity down swing, these -- a lot of the best retread and patching type products go into the off road type vehicles and so that market has been down. So those are some market headwinds that we face last year.

That account for about half of the story. The half is when we went through and started the changes that we are making with our sales force. We have some fall off. We have some people that didn’t want to do that and then we had some people that couldn’t do that.

And so it was a combination of people that shows themselves to leave and some that were have to leave. So we spend 2016 basically re-ramping our sales force and that includes sales leadership as well which is a really critical part of executing in this type of sales model. And so on average we had about 10% of our territories gap last year.

That’s on average. So there was a period of time was higher than that. We have rectified that by the end of the year. But the challenge there is and we have the territory. You have some loyal customers that you’ve been able to serve through phone calls and through the manager going to that territory, but you are efficient and you are not gaining share.

So -- and in fact you probably losing share. So we lost some share because of our sales force turnover last year. We also have the challenge, now that we have a lot of new sales people and new sales managers, we have really put program in place to hire the best. We really like the people we are bringing in now. But there is a learning curve here.

We got a large portfolio of products is one of our advantages and it’s a very solution-oriented consultative sale process that we have in place. So that just takes time for people to get up to speed and have the depth of knowledge of some of the folks that have been there for 20 years.

And so these are changes that really needed to occur a long time ago.

This business has been a -- it’s been just under invested in, is probably the right way to describe it for a long time and so when you start investing and trying to make change it’s really going to have an impact on performance and expecting people to have higher performance you are going to have turnover and we went through that in ’16, so we are more optimistic in ’17, because we hopefully don’t have to go through that level of turnover again.

Still challenges, still lots of work to be done, but we're investing in this business and we are very excited about it..

Thanks so much Dave. That’s all I have..

Thanks, Adam..

Our next question comes from the line of Gabriel Hajde from Wells Fargo. Your line is open..

Good morning, everybody. Welcome Matt to the call, Matteo..

Thank you..

Just a point of clarification, I guess, maybe for David, you state in the press ways that you would be consolidating some your manufacturing footprint..

Yes..

As well as seeking sort of the some of the new sourcing partnerships, I guess, the question is twofold, one, it sounds like the footprint optimization will be mostly done by the end of year, but perhaps a cultivating the new sourcing partnership can last in 2018 and maybe that’s an ongoing thing, just trying to understand timing of that? And then the $10 million you cited for cost, is there potentially more to come on this or is that just as it relates to this particular program that’s the best estimate at the time?.

So, first question, actually I could answer both questions with the same comment really gave, this is part of our strategy. So this is -- we are highlighting this because it is a fairly large effort to start and it’s a change in our operating model.

We have not been -- and apply to -- invested heavily in sourcing exceptional course of our Distribution business we have already do have the skills. And because of the size and magnitude of this first level of change we are highlighting it here and that will be done within ’17.

But the change in the migration towards this vision is a -- it’s an ongoing process, you never -- you never done with a lean transformation and I don't say that's to scare anybody in the organization, it’s more -- I say to say we are going to continuously improve from here now, we have been working on that this year but it's a constant process where you’re reevaluating how you are organize and how you are align to best serve the customer base that you are really trying to serve.

So that’s going to involve continued work on into the future. And but -- to answer your specific question the $10 million of -- approximately $10 million of cost is designed as part of this first really big project that we will transfer a lot from the organization..

Okay. That’s helpful. And then, I guess, sticking with this initiative, can you maybe Matteo help us, how the $10 million might flow through the financials, maybe some in restructuring spend and some in income statement or most of it show up in the cash flow..

Gabe, I will say that the $10 million cost, it’s about, I will say that the change $2.5 million is severance for people, $5.5 million is cost that we will spend in allocating equipment and facility shut downs and then we have about a couple of million of impairment charges will take on the equipment that we have.

That the way I would characterize that..

So really $8 million of cash and this is above and beyond the $10 million to $12 million that you have slated for normal CapEx..

That is correct..

Okay. Helpful. And then switching gears, I guess, to the 15% reduction in corporate headcount.

I guess, can you give us a sense for maybe number of folks, are a way to quantify this and how to think about it going forward? And then follow-on I guess to that is, do you anticipate, I think, the answer is probably, no, but do you anticipate having to hire some of these folks back maybe in different parts of the organization as it sounds like you sort of implement more of a decentralized strategy?.

I think, the last part the answer is no. I think the points of doing this was to make sure we have the right resources in the right seats. So, yes, there are some adds that come after some cuts as we shuffle to make sure we have the right skill sets throughout.

I think we are showing you the net effect of that in the kind of information we are giving you here. The idea here is that corporate is a -- at corporate we will pass the organization.

We are an organization that deploys the capital and we are an organization has the ability to have some expertise that is broader than an individual brand within our portfolio might be able to afford. So it’s kind of internal consultant perhaps here and there. That’s it.

We have tend to keep that very lean and I think we have bounce back and forth between what corporate role is in the big picture of things in the past and we are clearly defining that here and that’s what you are seeing as a result there.

So across the wide -- I am not going to go into much detail, across the wide variety of functions and it’s a -- it was design to make a clear what corporate is responsible for and that way the businesses can then invest appropriately in everything else..

Okay. Is there a dollar amount that you would like to share with us in terms of expected savings or is it inside….

Yeah..

… maybe in the $10 million of savings?.

Okay. Yeah. We -- it's -- yeah, it’s -- I think you can look at -- look towards our guidance there on the savings we are getting from our initiatives here in that maybe idea the total number….

Okay. That’s -- all right. And then, I guess, the other question, well, two final ones, one would be, you guys laid out obviously some long-term financial objectives and targets.

But if we are just taking this year's EBITDA number adding the $10 million of savings that you expect to get from footprint optimization, it kind of get you where you think you might be the greater than $70 million without any movement in sales and I guess, [ph] once your (58:11) trajectory has been down, but seems like the overall economic climate seems to be pointing better or higher? And then you also identified or talk about some language in the press release about your company probably continued to find opportunities to improve operation.

So should we interpret it that there is upside to maybe the $70 million and $80 million or and I know you mentioned some restructuring and some are not, again just trying to bridge the gap between what you did in ‘16 that the $10 million of savings here expect to get and obviously the continued focus on doing better year-over-year?.

Gabe, this is in our forecast, so answering your question would be probably making a forecast, so I apologize to that, but I am not going to answer it because it’s, I am not going to forecast.

You are math is certainly correct and I will go back to saying that as part of our plan we will be intend to grow business on the topline, just putting to go at the right way. So the topline is not our target. There are some stretches in certain areas of this and I am not but you can’t stretch an organization across every facet of what we do.

So we are going to stretch where we think the most important methods are and you can see that here and that’s we are going to continue to do that..

Okay. That’s make sense. And then the last one just sort of I guess risk mitigation and thinking about what Myers had been at least within the Manufacturing or Material Handling aspect of the business, more heavy production assets, again finding folks to do things better than what you do and outsourcing that.

Can you talk about maybe some specific examples or areas that you've identified where this might be applicable, just given where you guys are in your supply chain to your customers, just thinking maybe seat boxes there is a little bit better lead time and so you can outsource certain components or something like that versus some stuff that might be a little bit more real-time in terms of delivery?.

Yeah. That’s a fair question, Gabe. Let’s do this. I think it would be better if we hunted back to later in the year once we finished the first two phases of this and then we can -- once you can explain a little bit about the what it will be clear what would the answer to your question.

I would rather do it that way just because we are in process on some things here. I just want to make sure we are executing the way we think it will lay out before we talk about that.

Is that fair?.

That is fair..

Okay..

One, I guess, the last one, resin inflation anything that we should be thinking about, I mean, it seems like second half better than first half, I don’t know if that were -- ample costs were playing into that at all?.

I would say, Gabe, in terms of the resin we are, I would say, we are seeing a -- we saw in first couple of months of the year slight increase in the cost, but we are projecting the cost then to go back down in the later part of the year. So right now we are not seeing any significant challenge for us in terms of resin industry percentage..

All right. Thank you, Matteo. Good luck guys..

Sure. Thank you..

Our next question comes from the line of Matthew Paige from Gabelli & Company. Your line is open..

Good morning. Thanks squeezing me in..

Hi, Matt..

So, I just want to go back to your overall strategy, you mentioned your M&A viewpoints, but is there any particular product area or geography that they are thinking about adding to that portfolio and I guess, conversely, as you look around your product portfolio was there anything that don't any longer view as over smart?.

I am going to hunt on the second part of your questions just because I think it’s important to always go through an evaluation of your portfolio, but I think we are now and we have done that, but we are not in a position to talk about that today. In terms of where we would grow though from M&A standpoint. We are a small company.

We are mainly playing in, I’d even say, United States, maybe generously North America with Scepter business.

So, I think, it's important to start and stay close to what you know and then expand outlook from there, so from a geographical standpoint I think that this is a region we know and it’s from a management capacity standpoint it’s easier to start there. So we will focus there. It doesn’t mean we are not interested in the rest of the world, we are.

But I think you get there over time.

The -- in terms of targets, as I have said before, we are looking at the broad range of things, I think, you the word funnel is used appropriately when people talk about M&A because you start with the big number and you have a, one thing I will tell you, we have is a very strict filter for looking at things as they come in and you’ve got to boil that large funnel down quickly to an actionable group.

But I will say that we are looking both at things that relate to kind of things we do today as well as things that might add a piece to Myers that again fits within our niche market orientation and our flexible operations. So we are not opposed to looking at a third segment if you will.

These kind of things take longer to think through obviously because there change in direction, but we are not oppose to that. So those -- there are parts of the funnel that have those kind of things in that as well..

Great. That’s really helpful. Thank you.

And then just a last question for me is just more housekeeping related, could you provide an update on the note Wingate and what the payment schedule look like?.

No changes on that. It’s nothing, it’s different from what’s in the disclosed information already on it..

Okay. Well I appreciate it and good luck..

Thank you..

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

Yeah. Good morning. Thanks for taking my questions and great presentation of the new plan here..

Thanks, Chris..

Quickly I just was thinking about the sourcing and if this was asked I apologies but how far long are you into the talks with any potential partners and how does that play out throughout the year in terms of, will you announce partnerships with some people or it will just be internal?.

No. It’s -- first of all, to actually first question, we are very far long. We have a detailed plan for all what we are trying to accomplish this year.

We have -- we are -- I have done this sort of thing before and it’s a -- we want to make sure we derisk it so we have spent the time necessary and we are going to take the time this year to do it in a very controlled and orderly fashion, it’s no rough just to meet some quick savings.

So we have identified that and we are hoping to develop great partnerships down the road. I don't think they are going to be relevant enough to announce in a public way. But our goal is to have very solid partner that we are in -- for the long-term..

Great. And then second question, just obviously, a lot of changes happening in a lot of initiatives.

Do you need to add anymore, I guess, you may be just talk about the talent you have and do you think you need to add more to execute on the plan and maybe just talk about that change in culture, maybe just comment on where that is currently, our imagine that they are excited with the new initiatives in place?.

Well, I think, part of any growth strategy will revolves around having the talent that’s capable growing with it and so we are constantly looking for great talent to add in a lot of different areas. So I think there will be investment this year in talent and there are going to be investment every year in talent.

So that’s something that we are going to continue to do. And companies that can execute on the strategy and the vision that we have are able to really orient their talent towards the thing they really need and that’s part of the strategy. So, absolutely, I am very pleased with the senior management team.

There is a -- some of the things that we accomplish in 2016 were direct result of the skills and the quality of the senior management team we have on Board today. So we are happy with that and it’s going to -- we are going to continue to develop the team on into the future..

Thank you. Thanks. Thanks for the time today..

Thank you..

There are no further questions in queue. I will turn the call back to the presenters..

Thank you. Thank you everyone for your interest in Myers Industries and your time and participation today. As a reminder, 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 our website under the Investor Relations tab.

Thanks very much. Have a great day..

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