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 Chris Manuel - Wells Fargo.

Good morning. My name is Christina and I will be your conference operator today. At this time, I would like to welcome everyone to the Myers Industries Incorporated Second Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

[Operator Instructions] Thank you. Monica Vinay, you may begin your conference..

Thank you, Christina. Good morning. And welcome to our second quarter 2017 earnings call.

I am Monica Vinay, the Vice President, Investor Relations and Treasurer and joining me today are Dave Banyard, President and Chief Executive Officer; Matteo Anversa, Executive Vice President, Chief Financial Officer and Corporate Secretary and Kevin Brackman, Chief Accounting Officer.

Earlier this morning, we issued a news release outlining the financial results for the second quarter of 2017. If you have not yet received a copy of the release, you can access it on our website at www.myersindustries.com, it's under the Investor Relations tab.

This call is also being webcast on our website and will be archived there along with a transcript of the call shortly after this event. Before I turn the call over to management for remarks, I would like to remind you that we may make some forward-looking statements during the course of this call.

These comments are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve risks, uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements.

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

Thanks, Monica, and thank you everyone for joining us. We're going to start on slide 3 with an overview of our second quarter 2017 results. I want to start by just saying our results in the second quarter were very consistent with the discussion that we had with most of you in the first quarter. We continue to make progress executing on our strategy.

There's a lot more to do, but we're very pleased with the progress that we made in the second quarter. Going to some specifics starting on the left side of the slide, we generated $8.7 million in free cash flow in the quarter from continued working capital discipline and capital spending timing.

This is a great result and we're very pleased with this and just shows the capability that this enterprise has for generating cash. Moving down the list here, our niche market focused led the year-over-year sales growth in the material handling segment.

We're very pleased with the results there, similar to the momentum we had in the first quarter with solid growth in our RV market segment, with the growth in the vehicle related businesses and we saw market growth there, but as well we saw business growth beyond market we believe we gain share there.

In addition, we had good growth in our consumer markets.

And interestingly and importantly for us, we are starting to see some traction in the food and beverage market, which is a change for us and a positive change and good order or strength to the second quarter and we believe that that's going to help drive growth in the third and fourth quarter and it supports to what we've said before about our longer term opportunities there as well, as the chances for second half growth for us.

We made a lot of progress on our operational realignment in the quarter. It remains on track with savings expected to begin in the second half of 2017. Well under way. It is a journey, so we're well under way that there's a lot more to do and we'll discuss that in a little more detail later on and throughout the quarter we consistently reduced debt.

Moving over the right side. Our distribution segment continues to be a challenge for us. Number of different factors on that in the quarter, to start the quarter we did see some niche mixed market conditions, it was a slow start to the quarter coming out of a slow first quarter in the market.

That did pick up later in the quarter and we've seen that pick up through the summer here. But our execution is holding us back a bit there. And really we have a few holes in our business some of which are by choice and some of which are from execution, particularly in some of the execution we saw last year. So we exited the low margin business.

That's one of the holes. But then, we have some share loss that's hangover from some of the territory gaps that we had in 2016. And so that continue to I'd say contribute to what I'd say is in under-performance for us in that segment throughout the quarter.

We're very focused on that segment and we believe that we're putting the right tools in place and right prophecies in place and we're seeing a lot of time focusing on that moving forward. While we have made significant progress on our operational realignment, there's a lot more work to be done there.

We're doing the heavy lifting now, the big chunks of change throughout that - throughout our operations. But longer term that's going to translate then into process improvements in lean initiatives and talent upgrades. Those things are - that's part of the journey is continuous improvement that we're on. So there's more to do.

Like I said, we've made significant progress, but there's more to do. And then lastly, we did have material cost increases through the quarter that we mitigated through pricing actions, as well some product mix. With that I'm going to turn it over to Matteo to go through our specifics of our financials..

Thanks, Dave. And good morning, everyone. Today we'll review our second quarter financial performance and then discuss the balance sheet and the cash flow. So if we turn to page 4, we'll walk you to an overview of our second quarter 2017 performance on a GAAP basis, and as always all the numbers in the presentation reflect continuing operations.

Starting from the left, net sales declined 1.3% to $142.3 million compared to $144.1 million in the second quarter of last year. Excluding the impact of foreign exchange, the decrease in sales year-on-year was 1.2%.

The decline was primarily due to a continuation of the softer demand environment in our distribution segment and our decision to exit low margin business. Moving to the right side.

Gross profit margin declined 330 basis points year-over-year, due to operating efficiencies and elevated one-time expenses as we continue to move the organization toward a leaner and more flexible cost structure. Restructuring expenses in the quarter were $4 million, all related to the strategic realignment of our material handling segment.

As a result, GAAP diluted earnings per share was $0.07 compared to $0.19 in 2016. If we move to slide five, I will provide you with an overview of the key variances on an adjusted basis. Adjusted gross profit margin was 30.5% in the second quarter to 30.9% of last year, corresponding to a decline of approximately 40 basis points.

The reduction compared to last year was due to operational inefficiencies and higher raw material costs, which were partially offset by pricing actions and positive mix.

As we mentioned on last quarter's call, we implemented some price increases during the second quarter and we expect to recover most of the recent increases in raw materials with positive price during the second half of the year. Adjusted SG&A was $33.5 million compared to $32.8 million of last year.

The year-on-year increase of $700,000 was the result of higher compensation cost and professional fees, offset partially by lower facility costs.

As a result, adjusted operating income declined by $1.8 million or 15% and the decline as I said was driven by lower gross profit of $1.1 million in higher SG&A of $700,000 as we just discussed, adjusted diluted earnings per share was $0.17 compared to $0.21 in 2006.

If we turn to slide six, provide an overview of the results of the business by segment. Starting from the left side of material handling, material handling sales increased by 2.1%. Increasing sales was driven by the growth in our consumer and vehicle markets, offset partially by softness in our industrial end market.

While trends in agriculture remain challenging, we did see some strengthening of orders during the quarter in some of our niche food and beverage applications. Adjusting operating income in the segment decreased $1.6 million or 12%.

The reduction was primarily the result of higher material costs and increased operating expenses, partially offset by higher sales volume and favourable price and positive mix. Turning to the right side of the page on distribution. Sales declined by 9%.

The decrease in sales was primarily the result of the soft market demand, particularly early - in the early part of the quarter. Overall, weakness in the export business and loss of share from the 2016 territory gaps.

In order to address these issues, our training programs for the new sales reps remain ongoing and we implemented new pricing tools and technology upgrades to better support our sales force, adjusted operating income in the segment declined by 25%.

The reduction was primarily the result of the lower sales volume, partially offset by the favourable mix. If we turn to slide seven, I will walk you through the balance sheet and the cash flow for the quarter. As Dave mentioned in his remarks, we had a good performance on cash.

We generated strong free cash flow of $8.7 million during the quarter compared to $4.8 million in the second quarter of last year. Year-to-date, we generated $21.3 million of free cash flow compared to a use of cash of $13.6 million during the first six months of 2016. Thanks to this performance.

We reduced our debt by an additional $9 million during the quarter and we have now reduced debt by approximately $19 million since the end of last year. As a result, we have been able to maintain our leverage ratio at 2.9 in spite of the lower EBITDA. This positive performance is due to the continued focus on reducing our working capital.

Working capital as a percent of sales in the second quarter was 8%, which was pretty much consistent with our performance in the prior two quarters and remains below our target of 9%. CapEx spending in the second quarter increased sequentially by $1.6 million, but was below last year.

And as I said in the prior call, this is due to timing and we are confirming our CapEx estimate for the year to be in the range between $10 million and $12 million for the total year '17. With that, I will turn the call back to Dave. Who will review our outlook and provide a strategic update..

Thanks, Matteo.

Before we leave slide seven, I just want to highlight that in the lower left corner there that consistent strong performance in working capital that we've demonstrated over the past four quarters really and that's a real main contributor to our free cash flow results, but it's also an indicator of the strategy that we're employing here.

And so as we switch over to slide eight, the next slide here. I am going to talk about how we're doing that looking forward and a little bit about what we see in our markets and the performance within our market as we look forward. So looking forward to our 2017 outlook, we're holding to the prior outlook, which is a flat revenue for the full year.

And obviously given our performance in the first half that means we're expecting second half growth and we expect that growth to ramp as the year continues. Lot of that growth coming from the progress that we're making in our niche market strategies. That had some strong share gains in several of the niche markets.

And more importantly we have a strong funnel of opportunities for the next set of wins that we see coming in the second half. In addition to that, we've invested in pricing, in technology tools, in our distribution business that we feel will start paying dividends here in the second half. Our operational realignment is on track.

As I mentioned earlier, it's on schedule and on budget. That's due to really solid planning and execution by that team where we're still not complete with it. And as I said earlier it's a journey beyond that.

So once we get through the heavy lifting of rearranging our factories we'll start coming into the zone where we have to do more lean implementation and that will continue on into the future and will continue to generate results for us. Lastly on a capital allocation standpoint, nothing changed there from last quarter.

We're going to continue to use cash to pay down debt and fund our strategic initiatives. Over on the right and talk a little bit about the outlook that we see for our businesses within the markets that we play. I'm going to start with our auto aftermarket. And as I mentioned earlier we're still executing to the point that we want to be.

We've made some choices about exiting certain portions of business and that's affected our results. We did lose some share last year with gaps in our territory. So these holes continue. As we move forward, we also are continuing to see softness in the capital spending portion of that business.

But we feel we're putting the right tools in place and renewed focus on executing process improvements with the team out in the field. However given the performance we've had so far to date, we don't feel that we're going to - for the full year be able to grow this business.

But we do expect this business to sequentially improve as we go throughout the year. Moving up the line up here, the food and beverage market and we're starting to see improvement there as twofold.

One is coming from the share gains from the niche market focus that we have in the food processing industries and that is around converting customers to our products that we - existing product that we already have. We're also seeing some - a bit more firmness in the agriculture market moving forward.

I think it's - we talk a little bit about this last quarter that we're starting to see that market reaching a bottom and I think that the order pattern that we've seen through the second quarter and here into the third quarter would support that as well.

And then lastly, we're going to continue to enjoy the gains that we've made over the last 12 months in our consumer and vehicle segment - excuse me, markets. We've strengthen those businesses with winning new business, as well there are some market lift going on there and we're going to continue to see that as we move throughout the year.

Put it all together and we are going to expect to see a flat sales for the full year, but with momentum moving through the second half. So in summary, a very solid quarter for us. We executed on the things we talked about last time and very pleased with the execution from the team.

We've made consistent progress and you're seeing that in the balance sheet results, as well as the momentum we're starting to see in sales in certain areas. We're forecasting growth in the second half and a full year flat on the top line. And with that, I'll turn it over for any questions..

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

Hi. Good morning, everyone..

Morning, Adam.

Morning, Adam.

Matteo, just on cash flow.

Can you give us your working capital expectations for the full year and longer term what the relationship should be between net income and free cash, given that your D&A is about $20 million higher than your CapEx now?.

Yes. Adam, I would say that in terms of working capital expectation for the year you'll see that the working capital will stay pretty much consistent with what we currently have.

In terms of the last part of your question, obviously I would expect the D&A would be for the year about between $32 million to $34 million and the CapEx we still think it was going to be between 10 and 12. So obviously cash flow will be higher than the net..

Adam, let me add a little piece to that, I'd say the way to - the way I look at it and the way I think we're demonstrating in our results is that you know, you can deliver in free cash flow what you generate in EBITDA, you're overcoming your capital spending by improvements in working capital. And so that's kind of a virtuous cycle.

It's not going to be perfect every time, but we're starting to get to the point where you're seeing that consistency and so that would be our - that be a good way to look at how we're thinking about it anyway..

Yeah. Thanks, Dave. And just Matteo one more on the - one more for you. Just you had for $4 mil of restructuring charges.

Do you have another I assume $6 million coming that you'll be running to the P&L later this year?.

That is correct. We are basically halfway through Adam. So you'll see the remaining amounts to come in the latter part of the year. As Dave said in his remarks, we are halfway through the project and we plan to complete the project by the end of /17. So the [Technical Difficulty]..

Yeah, And Dave just on the sales side, so you talked about strength in consumer and food and beverage you're seeing Ag picking up a bit, food processing getting better. You know, those two businesses are a quarter of your sales, right, and those seem to be getting better. Auto aftermarket clearly is not right and that's 30% of your sales.

So when I think about that, I know it's early days as far as 2018 goes, but based on the fact that you have auto market moving in - auto aftermarket moving in one direction food and beverage and consumer moving in the other, do you have reason to expect sales to be up next year as opposed to flat this year?.

Well, here's how I'd rather frame that I mean, we're not in a position to talk about 2018 yet, we'll jot [ph] that later here. But we do think and I think more than 12 month rolling cycle, so we are looking at the beginning of next year.

And I would say that the - first of all the momentum we're seeing in consumer vehicle and food and beverage those markets are getting better and we're gaining share in them with the strategic initiatives that we have. So those are positives and you expect those to continue as you move forward.

We are also spending a lot of time and focus on the auto aftermarket business because it is a - that's a share problem. The market's been choppy and it was a weak start to the year and I think that played out in the number of our proxies and other companies that play in the aftermarket through the winter.

But the summer and the fundamentals long-term in that business are still positive. And so the work we're doing is focused on how we turn that business towards growth and that's going to be a big focus of our attention here in the second half.

So I guess that would lead you to say that in the first half of next year where we would expect to see growth and that's our goal….

Right. And just a couple questions on sales. Remind me what you said on Industrial, I know you're expecting flat for the year, but there have been some mixed signals in terms of the you know, some of the survey data versus the hard data, right, the survey data being much - having been much stronger than the hard data, as far as industrial end goes.

What are you seeing there?.

Yeah, I mean, there's a couple of factors in there. First of all the businesses that - since we sell through industrial distribution, we cover a very broad range of markets and I think what we saw in the second quarter and then the beginning here the third quarter is sort of ebb and flow.

I think the industrial market generally the indicators are positive, but it's not wildly positive. So you're going to have these kinds of ebbs and flows as they - I'd say stair step their way up slowly. So I'll give you an example. The oil and gas market had a good start to the year.

Some of that momentum carried through the second quarter and that it sort of tailed off towards the end there. So we see that in our customers and our customers react quicker than the end markets. So we're getting that kind of early indicator and that's how it's tied really through July.

So you know, we did see a little softness there and that's why we've backed off a little bit on our expectations on industrial for the year.

If you look at all of our businesses that belies [ph] niche of having many of them and so we do kind of have a general market participation there and you know, GDP growth you're going to have a little bit of ups and downs in your GDP growth is 1% to 2% and that's where we are….

Right.

Does the - in that context, does the ISM data make sense to you, in the high 50s?.

I mean, it is an opinion poll to some extent. So you have to remember that fact that people are keying off of the fact that it's - you know, when you see something positive you tend to say hey, this is going better. So yes, things are better. I don't necessarily judge the ISM on magnitude.

I know that that's a way of looking at it, but the fundamental areas within the ISM are good. And so that's a positive. I mean, it's just not a - it's not a high growth world right now. We're kind of moving at a higher growth pace, but it's not, no, 4% and 5%..

Sure. And if I call your comments on food and beverage with share gains in food processing and seeing a bit more firmness in the Ag market with your order patterns. Just remind me what you said about consumer and vehicle specifically.

Forgive me for having missed that?.

Sure. No problem. I think on the vehicle side there's a market fundamentals that are still positive. So we're seeing market lift out there. The RV market continues to be very strong at historical highs, which always is a little concerning, but the fundamentals of why is there are strong. We are also doing a really nice job within that business.

We have new leadership that started earlier this year, that's been doing a phenomenal job of really connecting with our customers and gaining share there, and so very positive on that part of the market. On the auto side, that you know, in general the sell through if you will on their businesses has been slow.

The major auto companies did decline a bit towards the end of the second quarter. But our business is more driven by model watches and that pace continues there. The competition is fierce for new models and that benefits us. So that - we see that pace continuing through the year and into next year. So that's on the vehicle side. On the consumer side.

That group of folks focused on that has done a phenomenal job this year of taking share and that's been a generally low growth similar to industrial and that's an example of when you really focus your attention on your core capabilities in a particular niche you can really go out and win. And I'm happy with the performance this year.

It's been a great year for them and I can expect that to continue as they have continued to innovate and think of new ways of growing..

And just last one, remind us what those consumer end markets are Dave?.

I mean, the largest portion of that is the gas can business at Scepter. There is smaller piece of it throughout some of the other businesses, but primarily that's the market we're targeting..

Thanks so much..

The driver to that Adam are a couple of things. I mean, it's obviously there's a long care portion of that that people use gas cans, but there's also what I call the consumer toys market. You know, if you own a TV, you'd like gas can..

Got it. Thank you..

[Operator Instructions] Your next question comes from Chris Manuel from Wells Fargo. Your line is open..

Good morning, everyone..

Good morning, Chris..

And congratulations on the strong second quarter. I wanted to kind of zero in on a couple of topics. First being, if I kind of look at your expectation for flat sales year-over-year over the course of the whole year that suggests that in the back half that you're up on a 3%, 4%, 5% considering your front half was down a bit.

So just understanding potentially how this starts to flow through. So if you're winning some business it sounds like from earlier remarks and food and beverages in certain components of Ag, et cetera, they are getting a little bit better.

Should we expect that to see a pretty nice contribution as this flows through or might that take a little bit giving you're kind of in the middle of some realignment or maybe some thoughts there?.

I think your last comment is important to consider, but the goal for growth and this will apply into next year and into the future as long we're executing on this particular strategy and as long I'm here I would say. The goal with our growth is better and more profitable growth than what we've had in the past.

So in other words, the whole goal and the whole purpose of driving strategies and having flexible operations is that, as you add a dollar of revenue, that dollar revenue has an outsized impact on the bottom line. And you've seen that from the elimination of some unprofitable business.

We continue to do that and we're going to continue to do that in the future. I mean, that's a way of life for us now that we're going to continue to focus on what really matters. And so the wins that we're going after, our wins that we feel are going to add significantly better results down the road.

So the longer answer, but the short answer is yes, we expect that as we gain we will gain at a better pace than we lost..

All right. That's helpful. And look you've been at this now almost two years and have worked through a lot of the business.

Are you - and I do appreciate that things do change, but for the most part do you feel you are through exiting or cutting off elements of the business that aren't what you want for lower margin or not - don't venture your vision with where you want to be, that from here forward you can be in it - more added up component? Or do we still have six months, 12 months, what may be different piece of the business, but….

I think that's a right bit - that your last comment is the right answer. The big chunks yes.

There are always - when you do that type of 80:20 analysis is the kind of thing the somewhat beauty of it, same thing with doing value streams, with doing lean activities, that you can always go back and revisit it and continue to drive for those better solutions down the road. Now obviously at some point you've got to lay the cards you have.

But I would say that that's a journey not a destination. So we're going to continue to evaluate. And the beauty of it is you can get smaller and smaller and keep people focused on smaller and smaller parts of the business.

And really the mindset that you have in that Chris is, you give people ownership of a piece of the business and say how do you want to run this and do it from a bottom up standpoint like, okay, you have this piece of revenue now you own it.

What do you need for resources and often what you find in those cases is that, when you have a big corporation you add more than you need because it's just the standard way you do it, when you give somebody ownership around a smaller piece of it they tend to be a bit more tight and recluse about how they factor their resources to go win where they want to win.

And in that process as you continue to chop up the business into these segments where you give ownership to strong performing leaders in your business you find that they ferret out these little pieces as well, you know, why do we have a manufacturer.

These customers are costing us more to serve than you know, what does that have, its two ways, you can either end up with a pricing opportunity or a chance to find other ways of deploying your resources..

Well David, that's fair. But I mean, at some point you can eventually cut to zero if you wish and then you can be….

Yes, and what you're saying which is not a 80:20….

No, I….

Is not a cutting exercise, it's a simplicity exercise. It's a efficiency exercise. And so….

No, I appreciate that, it's more of me trying to understand are we most of the way and it sounds like across most of the businesses at this point know, the majority of the way through that, so that we could begin the picking up new as you're looking for different areas that are very profitable.

Along those lines, CapEx now you got kind of a rolling 12 months, at this point the CapEx I think it's when added up was about $4 million over the last 12 months. You're implying a very significant lift in the back half. So I guess the kind of question here is two parts as well.

If some of this given the components where you are seeing good growth, things like going back and repurchasing new moulds or things of that nature to build, so kind of a two part question here. One being, that's a pretty big number to get at 10 to 12 for CapEx.

I think when you're two and a half year to date what is all the spending coming on or is that more of a longer term target than the 2017 target?.

So in the second - let's just address the second half here, because I don't know what further out per say. So second half, the spending should be at half on growth stuff. So those - and those are projects that are underway. They haven't hit the balance sheet yet, but there are tools and so forth that are in process as we speak.

So - and then the other part of it, if you think about what we're working on right now, we're realigning our factories and that takes a lot of focus and work. And so to some extent you put off other types of capital spending until you get that done.

And so there is as - and I am not saying there's some backlog of equipment that's sitting idle or things like that is down because of not being able to send capital on it and so on and so forth.

But there's only so many resources you're having today, so particularly in that business is that we are doing these realignment in, there is more of a focus on getting the factories set up properly first and then we'll get to the maintenance that needs to be done on that equipment that's been moved on so on and so forth, does that makes sense.

I mean, it's - that's why it's a bit lumpy and to be honest with you given our new focus on this, it is going to be lumpy into the future and I'm going to probably be able to predict that within a six month accuracy. I mean, it's not - I am not going to try to be perfect on it..

That's fair. But for this year 2017, you are anticipating spending in that $10 million to 12 million. So that's a pretty big lift over two and a half year to date.

So I guess, as you're looking and you're saying a six month sort of accuracy, you're still anticipating being in that window for the year?.

Yeah, I mean, like I said there was a couple of big projects for the growth side that we are already in process on the capital.

So that we know and then there is - we know that there is a - because of what we've been spending our time doing that certain aspects of the maintenance side of capital have been delayed and we know what they are and that's how we're going to maybe I don't know….

I would say probably forecasted that we will close the year on the lower end of the guidance, closer to 10 and 12, put it this way..

Okay. That's very helpful. I have a couple more questions, but I'll jump back in queue. Thank you..

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

Chris, you had the….

Chris, do you want to ask you questions?.

There's still no questions at this time. My apologies. Chris Manuel from Wells Fargo Your line is open..

Hello, again. I apologize. I thought, figured there was more stuff coming. So my other question are two centered around, you've talked about you know eventually adding the business or making other changes.

So from an additions deletions, whether you want to call those acquisitions divestitures what have you? How are you feeling about the portfolio today? You're finding some of the opportunities you've been looking for that are low asset, high cash return oriented businesses.

Are there any issues gone through your portfolio today that you say well you know, some are clearly core, some are still being determined or looking at.

So could you give us a sense of where you are? Do you think it's feasible to see some activity by the end of the year or is this likely a 2018 event?.

It's hard to talk about timing on anything like that…..

Yes….

M&A is not crisp time event typically. Obviously the question two ways Chris.

First, focusing internally, I think what you're seeing in our results and we'll continue to see as we get back towards growth here in the second half is the result of focusing on niche businesses that have a better asset velocity of higher cash flow orientation and that will continue to improve over time as we execute on the strategy.

So the places where we're focused that you hear us talking about it here are the areas that have that those characteristics and we talked about that internally when we're reviewing the businesses, how we're going after opportunities and if opportunities require you know, massive cash drains to get there we change our approach and look for different opportunities.

So that is in process. Over time portfolios highlight themselves to be driving in the right direction or not.

I think if you look at the performance of the business and where we are in that evolution, it's too early to talk about, because we're - I'd like to get the business growing again and which we see in the second half here and get that momentum going, so that we can really evaluate better, whether there's anything that could stay or go.

On the other side of it is the M&A funnel is very robust right now. So there's a lot of activity going on. It's a very - it's a very expensive market. I will say that. So not that we would be any less disciplined in the cheaper market, but it requires a lot of discipline, which we will always employ. We have a very strict criteria that we're looking at.

We're trying to continue to fill in the funnel with opportunities every day and look for the right businesses to add to our portfolio and grow from there. So it's - and the timing of that is - it's going to time the wait times. And so we're getting ourselves prepared for that. We've done a lot of work on that over the past six months.

I'm very pleased with where we sit on that. And I think we're looking a lot of great stuff, so..

Okay. That's helpful. Just one last question I want to ask. When you - think last quarter laid out some targets for us for the next few years in '18 and the 2020 target.

And just refresh me those were not predicated upon out of the portfolio, that was kind of business as it was or did those contemplate a few addition?.

Well, I look at it two ways. One when we put these - it's not a forecast, it's a target. So you get to target using all the tools available to you, is probably the best way to answer that question.

So - but I think what we're seeing in our result here as we are demonstrating, that we have the ability to execute towards these targets with our existing portfolio. So we certainly want any additions to be additive and much higher than these targets.

We certainly want if we're going to take any action to remove anything we would want to remove things that are not interesting towards these targets. So those are you know, some common sense, but the idea here is - and you're seeing it in our results that we're driving toward these targets, already use all the tools available at our - to get there..

Okay. Thank you much guys. Good luck..

Thank you..

Thank you..

Your next question comes from Adam Josephson from KeyBanc. Your line is open..

Thanks, Dave. Just one follow up, just on the targets that Chris was just asking about. So if you look - you're gone from EBIT margins of 5% last year to north of 8% obviously by 2018.

Can you just remind us or tell us where you envision more of that improvement coming from, whether it's to the gross margin line or the SGA line and why?.

The answer to the question is yes. The why is the basis of our strategy of flexible operations, which is simple far - simpler requires fewer resources and that's both on the above gross margin area, as well as below. I think I highlighted last quarter and when we roll these out, that these targets do require growth from the top line.

It's not a shrink to get to these numbers. We think - and I think that that from our earlier commentary you can tell we were expecting that to start in the second half here. And so at some point you got to grow and we are focused on that as well.

We want to make sure though that we grow the right way that, that we add revenue in the places that we think are strategically beneficial to the enterprise. And that's what is going to drive these numbers, towards these targets.

So again, every tool - we look at every possible tool we have, growth is one of them, realigning your organization and simplifying it is another one and each of them is an ongoing process. It's never you know, our strategy doesn't end at the end of 2017 when we're done with certain large chunks of realignment. It continues in different ways.

And so the answer is all of the above and what we're driving here within this enterprise is a continuous improvement mindset and you put targets out there. You improve to get there and then you look at the gap to get to the next target and figure out how you're going to fill that gap..

Right. Just on the gross margin point Dave.

Is it more from - do you envision selling higher margin products or is it all going to come from this restructuring, just help us a little bit with where you envision the gross margin improvement specifically coming from?.

It's going to be from all of the above. So the niche orientation of our teams and how they're going after new wins is going after products and areas of the market where we can garner higher price and just offer that.

We are simplifying our operations which will eliminate a lot of costs, both in the gross margin area, as well as the SG&A area and you're seeing that already and you've been seeing that since I've been here.

And then lastly, there's - within existing business that we have today and this is a work that we've completed now for example in the distribution business, where our pricing wasn't strategic and we've put pricing tools in place that now allow all of our sales people to be very strategic about pricing on a variety of different dimensions that they didn't have information enough in the past to make decisions on them.

And so it comes from all those areas. And I am not going to say whether it's one or the other in a greater magnitude or not, you can tell by the information we put out in terms of the cost savings that we expect to get out of these restructuring projects, that that's going to drive a really nice large chunk of cost savings down the road.

But as I said, to get to some of these numbers growth has to happen and we want good growth. We don't want growth for growth sake.

And so I routinely talk to people within the organization about not all revenue is created equal and I don't want to just grow because that's to make the top line look good, growing with really solid long-term strategic business that we're going to be happy with..

Thanks so much Dave..

Thank you..

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

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