Myers Industries' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.21.14 | About: Myers Industries, (MYE)

Myers Industries, Inc. (NYSE:MYE)

Q4 2013 Earnings Conference Call

February 20, 2014 10:00 ET

Executives

Monica Vinay - Vice President, Investor Relations and Treasurer

John Orr - President and Chief Executive Officer

Gregg Branning - Senior Vice President, Chief Financial Officer and Corporate Secretary

Joel Grant - Senior Vice President and General Manager, Material Handling Segment

Chris Koscho - Vice President and General Manager, Lawn and Garden Segment

Todd Smith - Vice President and General Manager, Distribution Segment

Analysts

Adam Josephson - KeyBanc Capital Markets

Christopher Manuel - Wells Fargo

Christopher Butler - Sidoti and Company

Gary Farber - CL King

Operator

Greetings and welcome to the Myers Industries’ 2013 Fourth Quarter and Full Year Earnings call. I would now like to turn the call over to Monica Vinay. Thank you. Ms. Vinay, you may begin.

Monica Vinay

Thank you. Good morning. Welcome to the Myers Industries’ full year and fourth quarter 2013 earnings conference call. I am Monica Vinay, the Vice President of Investor Relations and Treasurer at Myers Industries. Joining me today are John Orr, President and Chief Executive Officer; Gregg Branning, Senior Vice President, Chief Financial Officer and Corporate Secretary; Joel Grant, Senior Vice President and General Manager, Material Handling Segment; Chris Koscho, Vice President and General Manager, Lawn and Garden Segment; and Todd Smith, Vice President and General Manager, Distribution Segment.

Earlier this morning, we issued three separate news releases announcing a dividend increase, authorization of a $40 million share repurchase and the financial results for the fourth quarter and full year of 2013. If you have not yet received copies of these releases, you can access them on our website at www.myersindustries.com. 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 filings.

I am now pleased to turn the call over to John Orr, President and Chief Executive Officer. John?

John Orr

Thank you, Monica. Good morning. It’s certainly a pleasure to have you join us. We appreciate your interest in Myers Industries. I am going to begin today’s discussion with highlights of our 2013 progress in financial results plus provide some comments on the fourth quarter. Gregg will then review the financial performance for the full year and fourth quarter in more detail. After that, I will make remarks about our outlook for 2014 in the longer term as well as discuss some additional press releases that we issued this morning.

If you can please turn to Slide 3, despite a continued challenging market environment, our adjusted earnings per diluted share rose 6.4% to $1 for the full year of 2013 compared to $0.94 for the full year of 2012. Our restructuring project in the Lawn and Garden Segment, the strong contribution of our recent acquisitions of Novel and Jamco, productivity improvements and new product introductions led to the increase year-over-year. And as importantly, we have strong free cash flow generation. As a result of the focus on vendor terms management, strong customer tractions and inventory management initiatives, we generated free cash flow of $66.1 million. This was the increase of 95% over 2012. And our free cash flow to net income conversion ratio of 254% was more than double 2012’s conversion ratio.

In addition to our earnings growth, we had a number of strategic accomplishments in 2013. As part of our innovation initiative, we introduced more than 40 new products and services, approximately 6% of our total sales in 2013 taking from innovation, new products, services or markets that we have developed in the last three years. Through our Operations Excellence initiative, we realized approximately $16 million in cost savings through productivity improvements, material cost savings and the use of alternative materials. These actions led to a reduction in our cost of goods sold of approximately 3%.

The 2012 acquisitions of Novel and Jamco performed as anticipated in 2013 and continue to be a good strategic fit. Our Novel acquisition has provided us with new opportunities in the beverage trade market in Brazil, including the development of a new product for an industry leading customer. Our Jamco acquisition has allowed us to further penetrate the storage and safety cabinet market through new and expanded product line offerings will address the needs of both new and existing catalog customers. Also we continued our balanced approach to capital allocation which includes returning cash to shareholders through dividend increases and share buybacks. We increased our annual dividend by 12.5% to $0.09 per quarter or $0.36 per year and during the year we bought back approximately $8.1 million of stock.

Just a few comments on our fourth quarter, fourth quarter adjusted earnings per share was $0.26 compared to $0.26 in the fourth quarter of 2012. We expected an improvement over the 2012 fourth quarter, but transportation issues impacted results. However, our Lawn and Garden Segment’s restructuring efforts resulted in at recording another strong quarter of progress.

I would now like to turn the call over the Gregg Branning, our Chief Financial Officer who will provide you with the details regarding our financial results. Gregg?

Gregg Branning

Thank you, John. Good morning. I will comment first on our results for the full year and then our results for the quarter. Please turn to Slide 4 of the presentation. Consolidated net sales for the full year of 2013 increased 4.3% to $825.2 million from $791.2 million for the full year of 2012. Increased sales generated by the 2012 acquisitions of Novel and Jamco were the major contributors to the year-over-year increase. The gross profit margin as adjusted increased to 27.7% for the full year of 2013 from 27.4% for the full year of 2012. Successful execution of our ongoing operations excellence initiatives centered on increasing productivity was the major contributor to the increase.

The gross profit margin as adjusted was calculated using gross profit dollars that excluded special pretax items of $11.2 million for the full year of 2013 and $1.1 million for the full year of 2012. Details of these special items could be found on the reconciliation of non-GAAP financial measured included on Slide 17 of the presentation and in the earnings release issued earlier this morning.

SG&A expenses for the full year of 2013 were $173.7 million compared to $163.4 million for the full year of 2012. The increase in expenses was driven primarily by incremental SG&A costs from our 2012 Novel and Jamco acquisitions. Incremental information technology costs to enhance our reporting and analysis capabilities contributed $1.4 million to the increase. And additionally bad debt expense in 2013 increased by $1.4 million compared to 2012, as 2012 expense was lower is the recovery of a bad debt that we established in 2011.

Net income for the full year of 2013 was $26 million or $0.76 per diluted share compared to $30 million or $0.88 per diluted share for the full year of 2012. Net income for the full year of 2013 included $13.9 million of special pretax items, while net income for the full year of 2012 included $3.7 million of special pretax items. Details of these special items could be found on the reconciliation of non-GAAP financial measures included on Slide 18 of the presentation and in the earnings release issued earlier this morning. If you adjust for the special items, our adjusted earnings per diluted share were up 6.4% to $1 per share for the full year 2013 compared to $0.94 per share for the full year of 2012. Our effective tax rate during 2013 was 34%. We currently anticipate that our effective tax rate for the full year 2014 will be 36%.

Please turn to Slide 5 of the presentation. Free cash flow for the 12 months ended December 31, 2013 increased 95% to $66.1 million compared to $33.8 million in 2012. Successful execution of initiatives to improve working capital led to the significant year-over-year increase and resulted in the free cash flow to net income conversion of 254% that John referenced earlier.

Capital expenditures increased to $30 million for the 12 months ended December 31, 2013 from $27 million in 2012 and approximately 65% of the 2013 capital spending was for growth in productivity oriented projects. In 2014, we estimate that capital expenditures will be approximately $35 million to $40 million and the percent of growth and productivity oriented projects will be about 72%.

At December 31, 2013, debt, net of tax was $37.8 million compared to $88.9 million at the end of 2012. In December 2013, the company repaid the remaining $35 million of 6.81% senior unsecured notes that were used under December 2003 $100 million senior unsecured note purchase agreement. Our net debt to total capital ratio was 13.8% at December 31, 2013.

Now, let’s turn to our business segments and their full year performance as summarized on Slides 6 through 9 of the presentation. The results are compared to the same period in 2012. I will be referencing the adjusted pre-tax income information by segment as it appears on the reconciliation of non-GAAP financial measures, included on Slide 18 of the slide presentation and in the earnings release issued earlier today.

We will begin with the Material Handling Segment shown on Slide 6. Net sales in the Material Handling Segment increased 13% for the full year of 2013 to $322.9 million compared to $286 million for the full year of 2012. Most of the increase in sales was due to the acquisitions of Novel and Jamco, which took place in July and October of 2012 respectively. Adjusted income before taxes in the Material Handling Segment was $41.3 million for the full year of 2013 compared to $47.7 million for the full year of 2012 reflecting a change in both customer and product mix.

Please turn to Slide 7. Net sales in the Lawn and Garden Segment for the full year of 2013 were $204.9 million compared to $205.8 million for the full year of 2012. Adjusted income before taxes in the Lawn and Garden Segment for the full year of 2013 was $11.8 million compared to $3.5 million for the full year of 2012. The significant year-over-year improvement reflected savings from Phase 1 of the restructuring plan we announced in February 2013, additional cost reductions driven by productivity improvements, and raw material substitutions and new product introductions. We are now focused on Phase 2 and continued improvement in this business segment.

If you turn to Slide 8, you will see that net sales in the Distribution Segment for the full year of 2013 were $177.4 million compared to $176.6 million for the full year of 2012. Sales of new products and market share gains and equipment sales led to the year-over-year increase in sales. Adjusted income before taxes in the Distribution Segment for the full year of 2013 was $14.6 million compared to $14.7 million for the full year of 2012. On January 30, 2014, we announced that the company will be closing the Distribution Segment’s Canadian distribution branches. In 2013, sales from those branches were approximately $7.5 million and profitability was negligible.

Please move to Slide 9. The net sales in the Engineered Products Segment for the full year of 2013 were $137.7 million compared to $141.7 million for the full year of 2012. Strong sales in the marine and recreational vehicle markets were more than offset by decreased sales of custom products as compared to 2012 due primarily to a strategic focus on more profitable business within the segment. Adjusted income before taxes in the Engineered Products Segment for the full year of 2013 was $15.5 million compared to $15.7 million for the full year of 2012.

Now, let’s turn to our fourth quarter results. Please turn to Slide 10 of the presentation. For the fourth quarter of 2013, consolidated net sales were $211.3 million compared to $214 million in the fourth quarter of 2012. Softer sales volume across most of our businesses partially due to transportation issues led to the decline in sales year-over-year. Gross profit margin as adjusted in the fourth quarter of 2013 was 27.5% compared to 26.8% in the fourth quarter of 2012. The gross profit margin as adjusted was calculated using gross profit dollars that excludes special pretax items of $8.1 million for the fourth quarter of 2013 and $0.1 million for the fourth quarter of 2012.

Details of these special items can be found on the reconciliation of non-GAAP financial measures included on Slide 17 of the presentation and in the earnings release issued earlier this morning. SG&A expenses in the fourth quarter of 2013 were $44.4 million compared to $42.2 million in the fourth quarter of 2012. Increased royalty and employee-related expenses as well as incremental costs from Phase 2 of our previously announced restructuring project in the Lawn and Garden Segment led to the increase in SG&A expenses.

Net income in the fourth quarter of 2013 was $3.3 million or $0.10 per diluted share compared to $8.5 million or $0.25 per diluted share in the fourth quarter of 2012. Net income in the fourth quarter of 2013 included $9.4 million of special pretax items while net income in the fourth quarter of 2012 included $0.3 million of special pretax items. Details of the special items for both years can be found in the reconciliation of non-GAAP financial measures included on Slide 18 of the slide presentation and in the earnings release issued earlier this morning. If you adjust to those special items, adjusted earnings per diluted share were $0.26 for the fourth quarter of 2013 and the fourth quarter of 2012.

Let’s turn again to our business segments and review their fourth quarter 2013 performance as summarized on Slides 11 through 14 of the presentation. The results are compared to the same period in 2012. I will be referencing the adjusted pretax income information by segment as it appears on the reconciliation of non-GAAP financial measures included on Slide 19 of the slide presentation and in the earnings release issued earlier today.

Let’s begin with the Material Handling Segment shown on Slide 11 in the presentation. Net sales in the Material Handling Segment for the fourth quarter of 2013 were $83.1 million compared to $84.4 million for the fourth quarter of 2012. The fourth quarter of 2012 benefited from some sizable non-recurring project sales. Adjusted income before taxes in the Material Handling Segment was $9.7 million for the fourth quarter of 2013 compared to $12.8 million for the fourth quarter of 2012. The decrease in income before taxes was partially a result of higher selling, general, and administrative expenses due to increased royalty and employee-related expenses. Customer and product mix also contributed to the year-over-year decrease.

If you turn to Slide 12, you will see that the net sales in the Lawn and Garden Segment for the fourth quarter of 2013 were $58.7 million compared to $58.8 million for the fourth quarter of 2012. Adjusted income before taxes in the Lawn and Garden Segment increased 39% for the fourth quarter of 2013 to $5.3 million from $3.8 million in the fourth quarter of 2012. Savings from Phase 1 of our continuing restructuring initiatives as well as additional cost reductions driven by productivity improvements and raw material substitutions led to this significant year-over-year progress.

Now if you would please turn to Slide 13. Net sales in the Distribution Segment for the fourth quarter of 2013 were $43.9 million compared to $44.7 million for the fourth quarter of 2012. Software demand from international customers during the quarter more than offset increases from new product sales in the U.S. Adjusted income before taxes in the Distribution Segment for the fourth quarter of 2013 was $3.6 million compared to $3.2 million for the fourth quarter of 2012. Lower selling, general and administrative expenses due partially to headcount reductions contributed to the increase in income before taxes year-over-year.

If you move to Slide 14 you’ll see that net sales in the Engineered Products Segment for the fourth quarter of 2013 were $29.3 million compared to $30.1 million for the fourth quarter of 2012. Adjusted income before taxes in the Engineered Products Segment for the fourth quarter of 2013 was $1.8 million compared to $2.4 million for the fourth quarter of 2012.

That concludes the financial review. I’ll now turn the call back over to John.

John Orr

Thanks, Gregg and thanks folks. I know that’s a lot of numbers but year end and fourth quarter as well. If you would please turn to Slide 15 at the presentation I’ll review our first quarter 2014 outlook by segments.

Our Material Handling Segment, we anticipate that strong sales in food processing and organic growth and new product introductions in Brazil will more than offset the impact production schedules and product shipping results and the poor weather conditions at the start of the year.

Our Lawn and Garden Segment we anticipate that sales will be lower than they were in the first quarter of 2013 partially due to the segment’s inability to ship product during the quarter due to weather and partially as a result of decreased production during the quarter as we implemented Phase 2 of the segment’s restructuring project.

Our Distribution Segment we anticipate that sales will be relatively flat during the quarter, again as a result of the poor weather conditions at the start of the year. However future quarters could see the benefit of the resulting pent-up demand.

Finally in our Engineered Products Segment we expect lower custom sales resulting from the elimination of some low margin businesses throughout 2013. Although our first quarter will be impacted by extreme weather conditions that affected most of our businesses, we anticipate that overall Myers will show another year of profit improvement as a result of sustained focus on productivity and cost savings initiatives including Phase 2 of our previously announced restructuring project in the Lawn and Garden Segment.

And finally we’re in contact with our investors about our long-term strategy which includes our balanced approach to capital allocation. This includes reinvesting in the business maintaining and increasing the dividend, paying down debt and buying back shares. With the excellent cash flow year we just had, we felt that it is appropriate to return additional cash to investors. Earlier today we issued two press releases. The first release announced that our 2014 quarterly dividend will be increased 44% from $0.09 to $0.13 per share quarterly.

The second announced that our Board of Directors has approved a $40 million share repurchase expected to be completed in 2014. These combined actions reflect our positive outlook for our business and our continued strong cash flow generation. Certainly this balanced approach to capital allocation will allow us to continue to move forward with our growth strategy for Myers Industries.

That concludes our management’s presentation. I’d like to turn it back over to Monica so we can take your questions.

Monica Vinay

Thank you, John. The operator will now direct the Q&A phase of the presentation. As a reminder please keep in mind that in addition to John and Gregg, the following segment Vice Presidents and General Managers are also available to answer questions: Joel Grant, Senior Vice President and General Manager of Material Handling; Chris Koscho, Vice President and General Manager of Lawn and Garden; Todd Smith, Vice President and General Manager of Distribution Segment. Go ahead please.

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question today comes from the line of Adam Josephson with KeyBanc Capital Markets. Go ahead with your question please.

Adam Josephson - KeyBanc Capital Markets

Good morning everyone.

John Orr

Good morning.

Gregg Branning

Good morning.

Adam Josephson - KeyBanc Capital Markets

John, on the repurchase authorization, you are going obviously from $8 million of repurchases and $13 million to $40 million this year. And how much of that increase is related to your desire not to, but cash buildup honestly given your low leverage ratio? And how much is attributable to your belief that the shares are undervalued just in fact you think that?

John Orr

Thanks. Well, we always think our shares are undervalued, Adam. But let me give you kind of a probably a little bit longer answer than you might be expecting to the question around capital allocation. We have a vast majority of long-term share – long time shareholders. And we spend a lot of time talking with them to understand what their thoughts are about their thoughts on Myers Industries. The things that comes out loud and clear is our growth plans, okay and where are the growth plans for the business, which requires an investment. The best long-term return in fact really is growing our business. As we talk to these long-term shareholders, the first choice that they have over capital allocation is to reinvest in the business, secondly is to increase the dividend, then pay down debt and then buyback shares. Now, certainly we have a growth plan and that growth plan revolves around investing in new product introductions on new markets, but that also includes buying of molds and tooling to do that.

Secondly, we have increased the dividend. We have been a dividend payer and an increased dividend payer for well over 40 years. And I think today’s announcement just continues that same plan. Thirdly, paying down debt and we have done an excellent job of paying down debt. And as you said, we are low-levered, that’s certainly for sure, but it’s something that our shareholders, our long-term shareholders expect us to do. And then finally buying back shares, Adam, that’s something that we think long-term shareholders have asked us to do as a return to them for their investment in the business. We believe our stock is a good investment and we believe that the two announcements that we made this morning on dividends and share repurchase that the Board has approved are the right things to do. Long answer.

Adam Josephson - KeyBanc Capital Markets

No. I appreciate that, John. In terms of the weather, I mean, you mentioned couple of occasions as are many other companies, can you give us more detail as to where you are most – in which segment you are most active in the fourth quarter and where you have seen some of the biggest impacts in so far this year?

John Orr

Yes. First, let me pass that on to Chris Koscho from Lawn and Garden. And then I will ask Joel Grant from Material Handling to talk about his impact. Chris?

Chris Koscho

So Adam, I would answer the question really in two different aspects. We saw great impact really due to the market begin to impact our business in November of 2013, really not weather-related at that point, but just an overall tightening of the freight industry to freight market. We began to see availability really challenged as far as freight and freight capacity. We track an index that basically ranges from 8% to 12%, which would be desired loads for available carriers. And that really hit us or started to impact us in late November and has continued forward. For us, the impact of weather has really compounded the capacity, the freight capacity situation and really furthered that challenges we got in the first quarter bringing carriers and access to carriers back in to Northeast Ohio has been challenging and quite frankly continues to be challenging as we move forward. As for the market, the weather has really delayed the launch of our season, with our customers. The weather basically from the Southeast up through the Northeast has created tremendous challenges both in cost and delivery for our customer base as well. So we certainly are seeing a delay in really the market in 2014.

John Orr

Joel will have the Material Handling.

Joel Grant

Okay. Good morning, Adam. In the Material Handling Segment, the North American facilities were all impacted during January. We lost multiple days depending on the location. In some of the locations we run 24/7 and have our product lines that were in a sold out position. Those – the catch-up on those items could take sometime, others we will be able to catch-up I would say was compounded by some transportation issues that seem to be working our way out but really were an issue in late in the month of January.

Adam Josephson - KeyBanc Capital Markets

Thanks, Joel and Chris. John, just one last one, in terms of your outlook for 2014, aside from Lawn and Garden, what segment are you expecting most of your profit growth in this year?

John Orr

Well I’ll go right back to Joel. Material Handling is certainly the – our largest business but it’s probably our best opportunity for to improve profitability, new product introductions are beginning to take hold. It looks like any kind of loss we have in the first quarter will well be made up through the rest of the year in that segment. Joel, do you have anything to add about the increased profitability.

Joel Grant

Well I would say as you said that through the rest of the year new products that are introduced early in the year will begin to take hold and those sales would become real. The productivity of projects that are capital driven are starting early in the year and those will begin to save money as we get into the latter parts of the year and historically we’ve been more active in the latter parts of the year. So as you say we’ll work hard in the first quarter the work-in project to make that up but rest of the year it looks fine.

Adam Josephson - KeyBanc Capital Markets

Thanks, Joel. Thanks, John.

John Orr

Sure.

Operator

Our next question comes from the line of Christopher Manuel with Wells Fargo. Go ahead with your question please.

Christopher Manuel - Wells Fargo

Good morning.

John Orr

Good morning, Chris.

Christopher Manuel - Wells Fargo

Couple of questions for you first a couple for Gregg if I want to start there is I want to understand a little around the working capital. Going back through the case from last year and then looking forward it looks like working capital was 20 ish million dollar used last year, it looks like a pretty big swing 30 plus million this year. As you sit today are you comfortable with where levels are or do you feel you have further to go on working capital and just kind of a sense of what the normalized rate here?

Gregg Branning

Yes. Thanks, Chris. We certainly improved working capital as we’ve talked to people throughout the year it’s been a stronger focus for us and will continue to be a strong focus. We did see improvement in all of our terms towards DSO, our days on hand in inventory and our DPO all got better. Certainly our DPO got significantly better where we had a lot of room for improvement as we increased our DPO days by about 12 days year-over-year and got that more in line with what you would expect in the industry. We will continue to focus on our working capital and expect to continue to improve certainly not to the extent that we saw in 2013 because we had a lot of – we did make up a lot of ground this year but it will continue to be a focus for us. The one caveat that I will say is always the case that we talk to everyone about in the past is with respect to inventory and resin pricing at times we do make select buys to protect our profits but clearly working capital will be another initiative again for this year just not to the extent that we saw in 2013.

John Orr

And Chris this is John if I might just add to that. Gregg is being kind of humble actually, a lot of the strength in the payables comes from some techniques that Gregg has actually got with us from the previous light, it’s certainly have helped us improve that payable situation. So, I want to pat him and his organization and of course our teams on the back for just a fantastic year around that.

Gregg Branning

Thank you.

Christopher Manuel - Wells Fargo

Congratulations, by the way it was a very strong cash flow. Okay. So second question I had if we could kind of run through the businesses particularly since we’re fortunate enough to have a couple of division Presidents there. How can you – if you can about what you saw with respect to volume levels through the quarter, order patterns etcetera kind of where things are setting up to start this year obviously we’re off to a I think be a little bit of a muted start given some hopefully transport and weather stuff, but kind of what you’re anticipating over the balance of or through 2014 from a volume perspective?

Todd Smith

Sure, Chris. This is Todd Smith. I’ll start from distribution. As we look into 2014 and first of all let’s start with our market indicators and look at that. From a market perspective we are expecting the market to be basically flat to slightly up. With that said we have plans and do plan to offset this soft market and drive growth through our new products and also for us new service introductions.

John Orr

Joel?

Joel Grant

Okay. For the Material Handling Segment, good morning Chris, I would say that we’re looking at the MHEM index is the one we follow. MHEM is a broad Material Handling Index that we found as very accurate for our business. They are forecasting – they’re still seeing that the market in a declining growth mode, but they do see some optimism in 2014 and in the back half more precisely in 2014. So we think that we will see a better level of activity as we proceed through the quarters but we fully expect to meet our obligations in the first quarter and be above prior year. Chris.

Chris Koscho

Chris, this is Chris Koscho. Fourth quarter for the Lawn and Garden Segment really recognized a low single digit decrease on the organic side and as we look at 2014 we expect the market is relatively flat. We do expect the first quarter to recognize a mid single digit decrease just due to the challenges we described earlier. As for the full year we expect that market to really be flat as well. Our opportunity to grow is certainly much like the other segments with new products, new services and new opportunities. So we don’t expect much support from the market, we’re going to have to create our growth through the initiatives and activities that we’ve launched.

Christopher Manuel - Wells Fargo

And John you want to address Engineered Products maybe?

John Orr

Yes, again we’ve been doing some bottom slicing of business that’s not as profitable. We’re going to continue to do that as we move through the first quarter of 2014. There are some impacts from a weather standpoint, couple of our businesses have plants in the South and we never thought we’d see that kind of a situation but certainly North Carolina was hit very hard. We do expect though to pickup, there should be some pent-up demand, we have an automotive supplier I mean an automotive customer that we supply that certainly needs to catch back up. So overall for the year we expect to be right back on target.

Christopher Manuel - Wells Fargo

Okay. That’s helpful. And then let’s see last question I had was with respect to new products I think just start of the call you mentioned there was something in the $50 million range, I missed the number, what was your new products number for 2013 you gave?

John Orr

$40 million I believe, $40 million.

Christopher Manuel - Wells Fargo

So as I’m looking back in your annual report from last year I know you’ve been targeting percent…

John Orr

There are 40 new products about 6% of our total sales (at the end of) 2013.

Christopher Manuel - Wells Fargo

Yes. So you’ve been targeting kind of a 10% level you were at 6% last year with I think $46 million you had listed is what you launched, kind of looking at the phasing it looks like 2010 was kind of a smaller year. So if you maybe talk a little bit about the pace of new product introductions. Is there anything maybe a little lumpy that might have slowed some of the momentum that you’ve been building there or how might we think about that progressing towards the 10% call?

John Orr

I think we’re still on target to reach that 10% goal. It’s something that we’ve started really the innovation process started three or four years ago. As in any kind of process you put ideas into a funnel and as it comes out we have hits and we have misses. We think 6% was a pretty good number for last year and our expectations are – is that we’ll continue that same or better number as we move through 2014.

Christopher Manuel - Wells Fargo

Okay. Thank you. Good luck in the quarter.

John Orr

Thanks.

Gregg Branning

Thank you.

Operator

Our next question comes from the line of Christopher Butler with Sidoti and Company. Go ahead with your question.

Christopher Butler - Sidoti and Company

Hi, good morning everyone.

John Orr

Good morning, Chris.

Christopher Butler - Sidoti and Company

With the shift in the cash strategy more towards the returning cash to shareholders, what does that imply about your acquisition strategy, your pipeline, is that indicating that you are just not seeing that the right deal, is that the right valuations right now and that things may slowdown on that front?

John Orr

There is really no change, Chris. We continue that balanced approach to capital allocation as I mentioned earlier. We have the growth platforms that we publicly have stated where we are growing to grow. We continue to look for the right bolt-on acquisitions similar to what we did in 2012 with Jamco and Novel. We have obviously specific financial terms that acquisitions have to meet. But it certainly doesn’t mean that we are taking any kind of backseat to that strategy. It’s all part of our balanced approach to capital allocation and I can say stay tuned by this.

Christopher Butler - Sidoti and Company

And looking at your capital spending, it sounds like you have about $25 million maybe a little bit more mark towards growth projects could you give us a sense on what those are?

John Orr

Well, we – I can’t give you specifics, but we did up our capital expectations for this year again as part of creating the new processes, new products in our business, so a lot of that is high capital cost because of new tooling and potentially new equipment. We have plans for more than 50 new products in 2014, so obviously we need the CapEx to do that. But again it’s all part of that balanced approach to capital allocation, one to get too far out of the line with the other.

Christopher Butler - Sidoti and Company

And looking at Material Handing in 2013, you benefited on the top line from increased sales of lower margins products, but it hurt your margin a bit. As we look to 2014, did those sales kind of revert back to normal hurting that top line, but boosting the margin in sort of an opposite fashion?

Joel Grant

Yes, I think, this is Joel Grant, Chris. The – Gregg had mentioned that there was really a profound change in the mix during 2013 and that’s something that in this business it kind of comes and goes will have customers putting a new DC, customers change out of fleet of wooden boxes to plastic boxes. And those things drive some of the major swings. So we do have an active amount of new product development and some new targets online for 2014 that we think will drive things back to a more normalized level.

Christopher Butler - Sidoti and Company

Joel, if we are looking at your conversation on the MHEM index and declining growth, it sounds like you think some of your new products would be able to offset any reversion to norms and the lower margin sales and kind of keep you in that same index range?

Joel Grant

That’s right. And I think we didn’t talk about on this call before, we are trying to convert people into our plastic products from alternate forms of packaging. So that helps you offset just what’s going on with the normal level of Material Handling activity if you are taking share out of a different product in a different – on competitive market.

Christopher Butler - Sidoti and Company

And just finally as we think about Lawn and Garden going forward because you kind of give us an update on what’s left as far as cost savings and I don’t believe it was volume specific, but give us a sense on where you might be with or without volumes over the next couple of years?

Chris Koscho

Okay, Chris. This is Chris Koscho and you are correct. The project was announced really volume neutral, it was really announced as a consolidation and as a cost savings project. We announced that project in really two phases. Phase 1 was announced earlier in the year and we have recognized an additional $2 million of savings from Phase 1 in the fourth quarter, which gives us $3 million of the $5 million that we announced early in 2013. As for Phase 2, we are really right in the middle of that full implementation. That project was announced that $8 million, we expect to start to see that savings in Q2 of 2014. So our expectation for savings in 2014 is really in the $5 million to $5.5 million incremental range, which would put us at about $8 million to $8.5 million of savings versus the announced $13 million. And we expect to see the remainder of that in the first half of 2014 – 2015, I am sorry. So that project continues I would tell you Phase 1 was ahead of schedule. Phase 1 savings came in faster than we had forecasted. Phase 2 will be delayed by about a quarter as we work through the startup and really installation of that footprint consolidation.

Gregg Branning

Just to add on to make sure that you – it’s clear Chris. This is Gregg Branning. The $8 million from Phase 2 we still fully expect to get that $8 million as Chris mentioned is delayed a quarter, so we will see that $8 million from Q2 of this year to the end of Q1 of next year. So we are on target for the full $13 million of savings of the two projects combined.

Christopher Butler - Sidoti and Company

Thank you for your time.

Gregg Branning

Thank you.

Chris Koscho

Thank you.

Operator

Our next question comes from the line of Gary Farber with CL King. Go ahead with your question please.

Gary Farber - CL King

Yes, good morning. Can you just go back over that again on the Lawn and Garden savings, if you had $3 million last year (indiscernible) get another $2 million this year from that Phase 1. And then there is – was there $8 million still out there. And then how much of that $8 million would you recognize this year?

Chris Koscho

Hi Gary, this is Chris Koscho. So that’s correct, we anticipate seeing the remaining $2 million from Phase 1 here in 2014. And we anticipate seeing an additional $3 million to $3.5 million or the first $3 million to $3.5 million of Phase 2 in 2014 really beginning in second quarter of 2014. And as Gregg mentioned, we do anticipate we are on schedule and expect to fully recognize the entire $8 million, with the remainder of that $8 million being recognized in the first quarter of 2015.

Gary Farber - CL King

So now the Phase 2 is sort of evenly split between this year and next year you would say?

Chris Koscho

Roughly and mainly driven by volumes, our first quarter volume of 2015 certainly will drive a majority of the recognition.

Gary Farber - CL King

Right. And then just your comments – so how much I am just sort of wondering when you put that aside where else do you sort of get your operating income gain from fiscal ‘14 this new products and maybe taking market share or something else?

Chris Koscho

Gary, fiscal ‘14 or fiscal ‘13, just unclear?

Gary Farber - CL King

Yes, ‘14 do you think building out the leverage you are going to get on your incremental revenue, you have about $5 million or so coming from these cost savings. I am just sort of wondering where else will you get leverage from because it sounds like the markets are sort of slow and you are going to be a little bit above the markets?

Chris Koscho

Yes, so I would tell you that the remaining pieces are kind of our profit drivers is what we launched several years ago which was really our productivity and material savings. Those projects continue. It’s really the secondary driver of our profits improvement in ‘13. We will continue that activity and expect to see further savings. I would tell you that itself is a little drier than what it has been in the past. The low hanging fruit was really captured over the last couple of years, but there is further savings that we will recognize from those material and productivity projects.

Gary Farber - CL King

Okay. And then just one last one on liquidity, can you just quantify how much total liquidity do you have pre the repurchase?

Gregg Branning

Liquidity as into our – how much debt capacity we have Gary?

Gary Farber - CL King

Right. With the cash balances just a couple of million, so how much you have before you even start buying back stock?

Gregg Branning

So when you look at the financing deals we did last year, we took on $100 million private placement that was funded here in the first quarter. And then with our revolver, our credit facility that gives us another $200 million, so we had plenty of room from a liquidity standpoint. You can clearly see what our debt was at the end of the year, our net debt of roughly $38 million as we fund that – fund the private – as the private placement was funded here in the first quarter that will put us in a cash position and we will obviously – a piece of that cash will be used for the buyback as well as for the increased dividends.

Gary Farber - CL King

Okay. So that’s you are saying how that $300 million is basically available and how that maybe a third of that is going for the buyback and the dividends?

Gregg Branning

Say that again, Gary, I am sorry.

Gary Farber - CL King

Are you saying in total before you get started on any of these return on capital actions, you have actually that $300 million, is that it?

Gregg Branning

Yes, that’s correct. So there is $300 million of capacity. The credit facility actually gives another $100 million accordion if we needed clearly $300 million of capacity more than enough to continue to drive our strategic initiatives of growing looking at bolt-on acquisitions as well as the share repurchases and dividend as John mentioned with our balanced approach to capital allocation, we can fulfill all of our strategies without any issues.

Gary Farber - CL King

Great, great. Okay, alright, thanks.

Gregg Branning

Thank you.

Operator

There are no more questions in the queue. I would like to turn the program back over to Monica.

Monica Vinay

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

Operator

Thank you. This will conclude the teleconference. You may disconnect your lines at this time. Have a great day.

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