Q3 2021 Myers Industries Inc Earnings Call
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Hello, and thank you for joining today's Myers industries trench trench, one third quarter earnings call. The call will begin shortly thank you for your patience.
Thank you very much for your patience to cool will be underway. Shortly thank you.
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Hello, Good morning, and welcome to the Myers Industries 2021 third quarter earnings call. My name is John and I'll be the operator today, if you'd like to ask a question. During the presentation. Please press star followed by one in your telephone keypad and if you change your mind. Please press star followed by Chi I will now hand, you over to our host Monica Vinay. Please go ahead Monika.
Thank you.
Thank you. Good morning, Thank you for joining us I'm Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industries. Joining me today are Mike Mcgaugh, President and Chief Executive Officer, and final Robinson Executive Vice President and Chief Financial Officer earlier. This morning, we issued a news release outlining the.
Financial results for the third quarter of 2021, if you've not yet received a copy of the release you can access it on our website at Www Dot Myers industries Dot com, it's under the Investor Relations Tab. This call is also being webcast on our website and will be archived along with the transcript of the call. Shortly after this event.
Before I turn the call over to Mike I would like to remind you that we may make some forward looking statements. During 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.
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 and 10-Q filings.
I am now pleased to turn the call over to Mike Mcgaugh. Thank.
Thank you Monica and good morning, everyone and welcome to our third quarter 2021 earnings call.
We continued our growth trajectory during the quarter. We made further progress on our long term strategy. Despite a difficult macro environment, that's impacting many businesses around the world.
I'd like to thank the Myers team for their commitment and dedication that made our success this quarter possible.
With that said, please turn to slide three for an overview of our third quarter results.
During the quarter, we saw continued strong strong demand from our material handling and distribution customers.
This demand combined with meaningful contributions from our recent acquisitions drove the company to $200 million in net sales and more than 50% revenue growth for a second consecutive quarter.
Company's topline was the strongest it has been in many years.
On organic basis sales grew 20% compared to the prior year period, which marks three consecutive quarters of 20% or more organic growth.
We are beginning to see the benefits of our investments in our sales force and sales training and an improved commercial focus across the company.
While our topline performance was strong we did see macroeconomic headwinds again, this quarter, which impacted our margins.
Input cost climbed higher due to increasing raw material cost and tightness in the labor market impacted labor costs. Both of these drove margin compression during the period.
The negative impacts of labor were due to overtime pay higher wages and in some cases, a lack of labor, which inhibited us from making or shipping certain orders.
While we believe believes inflationary labor and supply chain headwinds will likely persist for the next several quarters, we're taking numerous actions to mitigate possible impacts on our business.
These proactive steps include improvements in our sales and operations planning process, our reinvigorated sales force and the addition of a pricing excellence leader and team.
We're also working hard to Debottleneck and automate our plans, while we continue to secure the raw materials necessary to ensure that we meet the volume needs of our customers.
We remain confident in our ability to manage price volume and cost and as such we are reaffirming our previous 2021, adjusted EPS guidance of 90 to $1 five per share.
Before I turn it over to subtle I wanted to share a few comments on the state of Myers transformation.
Myers demonstrated growth is meaningful our company is becoming a growth story.
New buyers is here.
We're pleased with the growth today, and we expect this new growth mindset to be a sustained theme and focus at Myers industries.
In the short term. However, we continue to see an inflationary environment that is compounded by labor shortages and supply chain issues.
To manage through it we made a few near term supply oriented decisions that consume cash in the third quarter.
These decisions were made to ensure we continue our high service level to our customers and we expect cash flow trends to normalize in the fourth quarter.
I am thankful for the hard work of the Myers team in the third quarter and I remain passionate about Myers and has the opportunity to create significant value and provide meaningful benefit to all of our stakeholder groups our customers our employees our communities and our shareholders.
With that I'd now like to turn the call over to Donald Robinson, Our Chief Financial Officer to provide details on our financial results and guidance Sano.
Thank you, Mike and good morning, everyone.
Let's begin with review of our third quarter financial results on slide four net sales were up $6 million to $8 million, an increase of 51% excluding the impact of the Elkhart in trilogy acquisitions organic net sales increased 20% driven by price, which contributed 13%.
Have you ever volume mix contributed 7%.
Sales increased in all key end markets in both material handling and distribution segments.
Adjusted gross profit increased $7 $2 million, while gross margin decreased from 35, 6% in the prior year to 27, 2% in the third quarter.
Gross margin was negatively impacted by higher raw material costs, and higher labor costs, which were not fully offset by pricing actions and led to an unfavorable price to cost relationship.
Included in cost of sales was a $1 $6 million increase related to the LIFO inventory reserve.
Adjusted operating income decreased $3 $1 million to $12 $5 million due to increased SG&A driven by the addition of Elkhart in trilogy, along with higher compensation costs and higher professional fees.
Adjusted SG&A as a percentage of sales decreased to 29% in the third quarter compared to 23, 8% in the prior year as we are experiencing the benefits of our overall larger scale on our infrastructure. We're pleased that the investments we're making in support of our one Myers squared strategy are yielding positive results.
Adjusted EBITDA was $17 $3 million, a decrease of $2 3 million compared to the prior year adjusted EBITDA margin was eight 6%.
And lastly, adjusted EPS was <unk> 23, a decrease of seven or 23% compared to the prior year.
Turning now to slide five for an overview of segment performance for the quarter.
Beginning with material handling net sales increased $63 million or 73%, including the elkhart until the <unk> acquisition.
On an organic basis material handling net sales increased 26% driven by favorable price of 18%.
Strong volume mix contributed another 7% and FX, 1%.
Organic net sales increase in the vehicle industrial and food and beverage end markets.
You may recall that our consumer end market was up significantly last year, driven by increased storm activity, which led to higher demand for fuel containers.
Material handling adjusted operating income decreased $1 3 million or 8% to $15 $2 million.
The decrease was driven by an unfavorable price to cost relationship, resulting from escalating raw materials and labor costs, which were not fully offset by pricing actions.
Additionally, SG&A expenses increased primarily due to the Elkhart in trilogy acquisition higher compensation costs travel costs and professional fees.
In the distribution segment sales increased $5 million or 11% volume mix contributed 6%, resulting from increases across both equipment and supplies and price contributed 5%.
Distributions adjusted operating income decreased $700000 to $4 $4 million due to an increase in SG&A expenses, which more which were more than offset higher volume mix and favorable price cost relationship.
Turning to slide six.
Working capital timing negatively impacted our cash flow for the quarter.
Free cash flow was negative $13 8 million compared with positive free cash flow of $16 $2 million for the third quarter of 2020.
Cash from operations decreased in the quarter due to increases in working capital.
Driven by a $14 million and an $8 million increase in accounts receivable and inventory, respectively, combined with a $3 million decrease in trade accounts payable. Additionally.
Additionally, capital expenditures were $6 million in the quarter.
Sales were more weighted in the back half of the quarter contributing to the elevated accounts receivable balance.
In addition to higher raw material costs, our focus on meeting our customers' needs also contributed to higher inventory levels.
Year to date free cash flow was essentially flat down $700000.
Cash on hand at quarter end was $15 million.
We expect working capital it turned favorable in the fourth quarter.
Overall, our balance sheet remains strong and gives us the flexibility needed to execute on our long term growth strategy.
As a reminder, on July 30th we utilized our revolving credit facility to finance the trilogy plastics acquisition. We ended the third quarter with leverage at one eight times.
On slide seven turning to our outlook for fiscal year 2021.
We anticipate net sales to increase in the mid to high 40% range attributed to both organic growth and acquisitions, our previous sales guidance within the mid 40% range.
A little more than half of the growth for the year is expected to come from the airport and trilogy acquisition.
<unk> annual net sales at the time of acquisition were approximately $100 million and trilogy annual net sales were roughly $35 million.
While rising input costs and labor pressures continued to impact our profit growth and margins during the third quarter. We are seeing signs of resin cost easing and are cautiously optimistic it will begin to decline as we move through the fourth quarter.
<unk> combined with additional pricing actions affected in the fourth quarter should result in a favorable price to cost relationship for the quarter.
Taking these considerations into account we are reaffirming our 2021 outlook for adjusted EPS of <unk> 92.
The $1 five per share our guidance reflects a weighted average share count of $36 5 million shares and the addition of the newly acquired trilogy business. As a reminder, trilogy is expected to be only slightly accretive to EPS in the current fiscal year.
Our key modeling assumptions include depreciation and amortization expenses of approximately $22 million and capex of approximately $16 million to $19 million up slightly from our previous capex guidance of $15 million to $18 million.
Capex is expected to trend higher than past years, with our renewed focus of investing in our facilities and improving our capacity along with the addition of Elkhart in trilogy.
The effective tax rate is forecasted to approximate 26%.
In closing while the short term continues to be impacted by macroeconomic factors. Our fundamentals remain intact. We are extremely pleased with the demand for our portfolio of products along with our ability to pass along the value proposition. They bring through pricing actions, we are making solid progress on our one <unk> initiatives, which Mike will share with you momentarily.
With that let me thank the Myers team for their relentless efforts and turn the call back over to Mike to provide an update on our strategy. Thanks, Donal starting on slide eight.
It's been a little more than a year since our first introduced our long term roadmap and broader one maher strategy I'm very proud of the considerable progress we've made to date.
I have a lot of passion for this company our company I see the upside and the opportunity every day.
We're currently well into the middle innings on horizon, one of our transformation.
As a company we are aligned and centered on our true North our mission, which is to transform our material handling segment into a high growth business.
True innovator of engineered plastics solutions, while we also continue to grow and optimize our distribution segment.
As I outlined in the past horizon. One is built on driving self help initiatives to improve profitability and then using these proceeds to fund organic growth through sales and commercial excellence and bolt on programmatic M&A.
We've made meaningful progress across each of these areas.
As we continue to execute the remainder of horizon one.
I have the necessary foundation knowledge and track record to move into horizon two.
We'll continue with the self help our organic growth efforts, but we'll use the enterprise level M&A to create shareholder value.
After the completion of horizon, two we will transition into horizon III. When we approach M&A are more of a global scale.
Our <unk> vision in the associated transformation of our business is rooted in our ultimate goal of maximizing long term value creation for our shareholders.
We believe we will be achieved as we execute on this plan.
Slide nine covers the four strategic pillars that support our <unk> vision.
My approach is to be consistent.
Almost boringly consistent on the pillars and on the levers in the areas of focus we are using to drive our transformation.
Because they are the bedrock the foundation of our transformation, we must maintain consistency in our approach in order to provide direction to our people and ensure execution success.
These pillars are work trucks are straightforward and not terribly complicated.
It was good our success comes from our relentless and dogged pursuit of their execution.
Since I've covered these pillars extensively in the past I'll move on to slide 10 to update you on the progress we've made across each of these as it relates to our first horizon.
We have displayed an outstanding growth organic growth trajectory over the last several quarters and believe we're taking the right action to help sustain this momentum we.
We are building a world class commercial organization at Myers through the continued addition of strong talent at the middle levels in the new and rejuvenated marketing product management and sales structure, we've put in place.
We've also invested in sales training and improving our sales processes to drive organic growth customer intimacy and pricing to value not to cost.
Additionally, our investments in E Commerce continued to take flight.
E Commerce is showing encouraging results with year to date sales up approximately 30%.
We've learned to use E. Commerce is a flywheel for volume and have found that it is an excellent channel.
We're able to accept or decline business that helps us optimize our assets capabilities.
This flywheel approach will become more impactful as we get better at S&P and improve how we balance our growing demand across our facilities.
Moving on to M&A growth via acquisition is and will continue to be an integral part of our one <unk> strategy.
We closed on our acquisition of trilogy plastics earlier this quarter and are very excited about the prospects.
Trilogy enhances our ability to manufacture highly engineered and tight tolerance specialty products.
We're already taking some of the learnings and best practices from trilogy into our plants that were legacy <unk> plastics.
So far three months in the integration of trilogy is going well and is right in line with our expectations.
As a reminder, the integration of Elkhart has also gone well.
Helping us better serve our customers and capture growth synergies and $4 million to $6 million of cost synergies both of which exceed expectations.
From a big picture perspective through our two acquisitions over the last year, we are making progress on developing an effective framework for selecting high quality companies that complement our businesses and as equally important we're on our way to developing a strong repeatable playbook and processes to ensure a successful integration of these acquired companies.
<unk>.
The plastics molding industry is quite fragmented.
And we believe that acquiring technologies niche as investors.
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Thank you for your patience, ladies and gentlemen, we have lost connection with all speakers, we will be busy in just a second thank you.
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For your patience, ladies and gentlemen, we now have the team back on the line I'll hand back over to Mike Magee. Thank you.
Thanks, Jim I appreciate it sorry about that folks will get back to my prepared remarks.
I'm not exactly sure where it dropped but I'll pick up around E. Commerce. So that's a great place a great venue. So.
Additionally, our investments in E Commerce continued to take flight.
E Commerce is showing encouraging results with year to date sales up approximately 30%.
We've learned to use e-commerce is a flywheel for volume of downloads and excellent channel.
We're able to accept or decline business that helps us best optimize our assets capabilities.
This flywheel approach will become more impactful as we get better at ethanol piece and improve how we balance our growing demand across our facilities.
Moving on to M&A growth via acquisition is and will continue to be an important integral part of our one <unk> strategy.
We closed on our acquisition of trilogy plastics earlier this quarter and are very excited about the prospects trilogy.
Trilogy enhances our ability to manufacture highly engineered and tight tolerance specialty products.
Already taken some of the learnings and best practices from trilogy into our plants that were legacy <unk> plastics.
So far three months in the integration of trilogy is going well and is right in line with our expectations.
As a reminder, the integration of Elkhart has also gone well help me to better serve our customers and capture growth synergies and $46 million of cost synergies both of which exceeded our expectations.
From a big picture perspective through our two acquisitions over the last year, we're making progress on developing an effective framework for selecting high quality companies.
To complement our business and as equally important we are on our way to developing a strong repeatable playbook and processes to ensure integration successful integration of these acquired companies.
The plastics molding industry is quite fragmented and we believe that acquiring specific technologies niche is in best practices is a highly effective way to create value for all of our stakeholder groups.
We focus on acquiring founder owned companies with similar cultures and values to Myers, and we work with the management teams to invest and grow these businesses to improve processes additional capital investment.
Painting, and incentivizing key people and collaborating and optimizing across all of our facilities.
Pay a fair price not overpaying for these acquisitions is also an important part of the equation.
Our M&A strategy has proven to be successful so far and we'll continue to fine tune. It as we believe it will service well for the remainder of horizon, one as we pursue larger acquisitions in horizon, two and three.
The labor, we're also investing an Ottoman select operations within our facilities.
We have several engineering teams driving automation across Myers sharing best practices, and we're investing capex in the space and will continue to do so likely at an accelerated pace as we see the issue of labor or the lack of it going away.
An important part of operational excellence is pricing excellent.
And we've hired install the small but effective team that has led the space other chemical in plastics companies and instituting this capability at Myers.
The team is accelerating our focus on value captured through pricing.
We announced additional price increases in September and October and it began implementing value based pricing rather than cost plus pricing.
This is a change in approach and it will take some time to implement but it's an important lever to deliver value for our stakeholder groups.
Now I'll turn to our fourth pillar before giving my closing remarks.
A high performance culture is a key enabler of our long term success.
Having a true north having alignment on our values and our mission is critical for Myers to be successful we are well on our way on this journey.
We're seeing meaningful traction with our recently launched learning management system, which allows employees take online classes to help develop their capabilities and skills within the company.
Our desires to develop our employees and promote from within.
This inspires loyalty improves our company's performance improves our stability and continuity of our employee base and it also decreases cost.
We continue to invest in and build this tool and we believe that will help us in the battle for talent.
An important part of our culture and values based on serve in leadership I.
I believe that this approach and I am committed to instilling it at Myers.
The deployment of our certain leadership training is underway and 50 of our leaders have already completed this training or applying it in their workloads. We have an additional 50 going through the program in early 2022.
One final point is our mindset on inclusion.
Our objective admirers is to have a company where everyone feels welcome everyone regardless of gender race age sexual orientation fills welcome feels valued until they can have the type of career they seek here at Myers.
We didn't drive a specific set of metrics rather we focused on fulfilling our inclusion mission, where everyone feels welcome and the results have been impressive.
At our senior manager levels and above we've increased our hiring and promotion of female minority candidates as a percent of total hiring spend more than 100% versus past years.
While while we're not done yet we're making progress.
I'd like to close by letting you know that last week, our management and our board of directors held a multi day retreat to review our strategy and our short medium and long term goals and objectives.
The alignment in collaboration are remarkable and helpful.
We're putting the people and the processes in place to drive the company's transformation.
We have people in the right roles, who know what to do have done it many times before and are willing to work hard and get their hands dirty deliver results.
We have a clear and straightforward roadmap to create meaningful shareholder value, we have the team and the processes to deliver.
We will navigate the short term inflationary and supply chain bumps, while we remain calm disciplined and focused on the longer term I'm excited for our future and I. Appreciate your interest in our company with that we'll turn both open the line for questions.
Thank you if you would like to ask a question. Please press stuff in it by one and I tend to think he passed and if you change your mind. Please press star funded by taste.
Okay.
First question today comes in from Steve a budget of key bank capture market <unk>.
<unk> eyes and please go ahead with your question.
I'll I'll start with some modeling stuff and then get into some bigger picture things first just distribution sales came in at 50 million for <unk> is that how we should think about it for four Q or is there a seasonal variants that we should model.
Yeah, Hey, Steve I'll I'll have sano hit the modeling questions if that works for you.
Sure, Yes, good morning, Steve Yes.
In terms of have you seen that that trend throughout the year I would say that's still a relatively good.
Projection do you see as you Lee rapidly you're they're going to have some additional benefits of pricing continue to benefit them in queue for as well as the time growth as well so yes.
Okay, and then similar question for material handling just given the revenue range that you've put out for the year. It looks like there could be a little step down sequentially and revenue.
Do you expect that due to seasonality or or how should I think about that segment.
Steve that's great. So you may recall that we will lap a month and a half due to the <unk> acquisition from last year. So there's a little bit of that year over year growth set.
Won't be available in terms of that year over year growth number in terms of absolute number volume the way, we think about the modeling on that says acquisitions as you think about Q4, and how you're going to kind of come in your range acquisitions, We think will still contribute about half of that growth on the top line standpoint, and then as you think about and this is for the total company as you think about pricing.
We will continue to see additional benefit of pricing as we go through queue for similar to what we saw in Q3, and then similar volume growth.
Got it.
[laughter] and material handling operating income was down and three Q year over year. Despite the 73 per cent increase in sales can we expect operating income to be up sequentially as pricing actions or or anything else flows through.
Yes, given the fact that we're expecting price to constant turn favorable we would we would expect to see that starting to turn.
Okay.
So all that kind of comes to down to the <unk> guidance, it's a pretty big range. There's maybe a weeks left of the year just given revenue trends mix costs are you leaning to the higher end of the lower end.
Steve we're not commenting on what part of the range will land and clearly number of different variables that will impact that guidance range price mix. Obviously is one we expect a verizon that continued to ease and decline in so expecting some benefits out of that but yet to be seen as we continue throughout the quarter.
We've taken additional pricing actions, which we know we will continue to benefit us as well. So there are a number of moving parts and for now we'll leave it at that arrange out there that that takes those factors into account.
Okay.
You did say that you expect cash flow trends to normalize and four Q could you tell us specifically, what you expect for for operating cash flow in the quarter.
Yeah, we're not guiding to a specific number there Steve.
We're trying to imply a there is if you look at working capital as a percentage of our net sales clearly that's elevated at the end of Q3, we expect that to start coming back down as she saw you mean typically we've been in that 10 to 11 lemon 5% range. So we expect that to start training back down.
But but we have not guided to a specific number there what will tell you as well it gets an important priority is important priority for the company.
We made some decisions in third quarter to help our service levels.
Also the.
Right inventories in place to be sure we have the raw materials and also the finished goods to fuel that growth.
I won't give his particular guidance on casuals and say that it's very important priority here.
Yeah, well as Sano pointed out it's.
Go ahead.
Go ahead, Steve.
I was just gonna say you had pointed out that free cash flows basically flat for the year fair.
Fair to say that we will see a pretty big swing and <unk>.
So Stephens, we look at the three buckets of working capital, we would expect to each one of them that contribute to that working capital benefit in queue for and so yes, we expect free cash flow to be favorable in queue foreign.
We will continue to see how that plays out as we go through that a year.
Okay, I'm going to keep going if there's somebody else in line, just let me know and I'll be happy to jump out and come back.
You know this is this is the third quarter in a row, 50% sales growth with no real incremental EBIT contribution and we know why it's inflationary pressures but.
Is even it'll be up year over year due to the easy comp I would guess, but should we think that <unk> look similar to the last few quarters in terms of revenue and an EBIT coming in and that low to mid double digit range.
But little mid double digit millions.
You mean <unk>.
I'm actually talking about the first part of next year I, just as I think about the inflationary pressures the sales growth year over year, and just kind of how you are converting.
I'm curious when we start to see that inflection or if I should model one cute look more like.
<unk> and <unk> are likely to look like.
So Steve this is tunnel.
We have not obviously provided any sort of outlook for 2022, yet I guess, a couple of things to keep in mind Big picture is we continue to take pricing actions. We know this pricing actions will continue to provide benefit as we continue to go through queue for a new C look at it next year clearly, we're keeping an eye on the cost side of the equation unrest.
And what he continues to do and then demand as you've seen we started the euro very strong from an organic standpoint, as we lapsed some of that the impact of Covid last year, we saw volume come in volume mix come in at about 7%. This quarter. We continue to expect trends in that same same range as we end out this year and so.
I'll continue to see some benefit of that but our.
Our teams are working on that as we go through that process for <unk>.
On the polyethylene side, what you're seeing is inventories are starting to build.
We're seeing some of the weather whatever index you look at polyethylene is is beginning to soften a bit as as inventories build I think that will carry that's the one thing that will be different and <unk> versus <unk>.
Is the inventory balances and what the resulting does on on the end of the season on cost still still pretty high pollen.
Polypropylene is still high ish.
But polyethylene is starting to relax a little bit.
We took him a constructive approach with our customers to be sure. We had high service levels and that we also came to some I would say collaborative reconstructive agreements on price.
We're not a commodity company more more of a specialty company and engineered products company. So just as we didn't aggressively ramp prices up.
Think also we're going to have some stickiness as some of the raw materials Hall.
Got it so you would expect that even in a in a somewhat inflationary environment next year, you can get back to driving margin expansion on what has been pretty significant revenue growth.
Yes.
And going back to the retreat you mentioned, Mike can you tell us what some of the short term goals are just as.
The long term goals I'm presuming are aligning with the the three horizons, but what what do you see as near term priorities.
It's really the pieces outlined on the self help the supply chain S. N O P that excellence the pricing team getting that team geared up and.
Getting those getting that team to be able to have more of a positive impact.
Balancing surface level with inventory I mean, that's.
It's a delicate balance.
I'll say is.
It truly is outlined in that strategy is the self help peace.
During we have a good and thorough well thought out loaded bolt on pipeline on the acquisition side and we do.
Ensuring that we're continuing to feed e-commerce and then we don't make short term decisions and.
And curtail that that's that's going to be big value generator for us.
Particularly the Flywheels, we optimize our assets and then just all the commercial work we're doing we're remaking the company in terms of.
Sales product management marketing market management were bringing in the level of excellence here and being sure that we don't short shrift that.
But ah cash flow wasn't what we wanted it to be in third quarter, but this is a long term game and we need to continue to invest in the SG&A invest in capex.
That is sinope the demand the demand modeling, Steve the supply modeling getting that into play I think this is going to unleash additional capacity even out of our current asset footprint and then one thing we haven't done as much before we're gonna do now is looking at our assets as a grid and really optimising what products, we make on which assets.
How we get to a 24 seven run schedule and then how do we rent manage that across the United States, that's becoming more relevant with our roto footprint now that we've got.
Almost a nationwide footprint and we hope to continue to build that so it's just three yards and a cloud of dust execution I will say a lot of the discussion was more around Verizon to lost horizon, three but more on how do we prepare ourselves to get ready for horizon to recognizing that that may be honest.
Maybe a little bit sooner.
Okay got it just a.
<unk> some of that apart those are great answer.
Just ask directly on the Gulf hitting 1 billion and run rate revenue by the end of 23 are we still on track because if I had just assume organic growth moderates to more normal levels, you'll need to add maybe another $150 million or so and revenue depending on timing.
Yeah. It's on track, we said our run rate by the end of 23.
Steve.
I'll stand by that.
Okay.
And it has any of that grid work when done have you move product lines to lower costs facilities are more geographically advantageous places or is that still all yet to happen.
On some of our injection molding assets, we're getting better at that on the road. Aside there is a lot of untapped potential there we brought in and are bringing in some I would call. It professional product managers product management that mindset that asset management mindset.
Such ramping Steve on the rodeo side, where there's the most optimization from a grid standpoint.
Four I'd say, we're in any number one of the nine ending ballgame.
Okay.
And can we talk about pricing for just a second you said you have a new pricing team in place what are they focused on first as a specific product lines or products that are most negative in terms of price cost and just how are they determining value to the customer for value based pricing.
That's a good question. So we've got a an extensive.
Approach building out our market plans and these are very robust 20 page plan to do a value chain analyses figure out who has the right power and that value chain figure out where we fit and then what opportunities do we have to to capture to capture more value for our shareholders. So it's the market planning Prof.
Yes.
The account planning process the pricing team themselves a lot of this tale analysis, there's a lot of tell analysis that needs to be done a lot of it is also getting to a consistent.
Contract framework.
How we do our quotes and contracts.
And ensuring that we have more flexibility going forward to make more rapid adjustments then maybe what we had in the past.
So the leader we brought in it was was from a prominent chemical in plastics company I've.
I've worked with in quite some time, it's very good and he's brought in a couple of analysts to help them I think.
Cleaning up the tail cleanup quotes of contracts.
And then moving to this value base mindset and like I call out in my comments that may be a year journey or a year or two journey as we're moving away from being a contract manufacturer and a taller to being more of a value added specialty provider, that's really who we are and it's just having some of those discussions with some of our key channel.
Partners.
To get to that point, but it's moving that to.
In my opinion, that's a very significant value creation lever for the company.
Yeah, I I would agree with that and and I know that ultimately intent is to be an innovator of engineered plastic solutions have you rolled out any new products based on your updated capabilities or what do you have on the drawing board that you think can drive some revenue within the next year or two.
Yeah, there's some incremental extensions on the <unk> side, and we were really sound a lot of neat technology with trilogy more than we expected some of the processes and how they go about making the products they were pretty.
They were.
A pretty tight engineering based company.
Rolling that over to some of the they'll carbon miracle on assets in customer basis.
We picked up some proprietary programs with some big name.
Consumer and even aerospace companies that it's been intriguing and again a lot of that has been on the engineering side on roto.
On the the blow molding side again, it's continued line extension in the portable fuel containers we've.
We've got some some innovation there that we have not yet announced some other incremental innovation and then also rolling out into the midst military segment.
On the blow molding side, so we're not as dependent upon portable fuel containers.
And that's that's a good business for the next year's.
Look is probably has some headwinds longer term. So how do we take the cash flows from that business the talent on that team and.
And diversify bit and so that's really more to the military space, there's a longer sales cycle there for sure.
But we can make quality products to tight specs and we're building that piece out so a lot of its line extension, we're trying not to do big Bangs I really don't Wanna do Moon shots, you don't need moon shots and plastics morning, but theres any innovation there.
I'd, even say boy.
Boy, Steve I would put e-commerce as the pieces that innovation the.
The mindset Ahmet channel has dramatically changed in Myers.
And it's helping the distribution business, there's a lot of a lot of room to run on taking that distribution business into more of an online inside sales approach.
Similarly, there is more and more consumers one of research products and buy online and buy through the e-commerce channels and I just think there's a lot there.
You got startup costs right now so we're investing in it at this point and.
We're seeing some proceeds through more volume, but are both in <unk>, you've got 345 years of investment in e-commerce if you really wanted to be a player.
Yeah.
Well I guess.
That point on on expanding the channel last quarter I asked about demand destruction from aggressive pricing and the answer was no I'll just ask that again any negative demand response.
No I mean really the issue has been just get his product.
I've made a lot of these and marketers right along and growing.
On some on some of the products and injection some are more expensive products. There's a few customers that will push back in.
Through negotiation.
Managed to order flow to try and give them a little bit of an incremental advantage on negotiations, but generally speaking there is a lot of demand for the products that we make.
My compliment to the legacy teams here they got us in the right niche as we have good brands, we have quality products, we just need to get bigger.
Yeah, I'll just add two more.
And I do appreciate all the time last quarter, you said, they're in automation strategy was an important part of helping with the labor situation and you've got it sounds like automation consultants and the plants.
What what have you learned or implemented over the last 90 days and what can we expect in 2022 from on the automation front.
Yeah same thing there again, it's early innings in our different plants and the blow molding side.
The injection molding side blow molding has got a number of opportunities where you can put robots in place and we're really not displacing jobs. What we're doing is we're filling work that needs to be done where we cannot get workers.
And so that's been a big.
A big constraint for us and so there's incremental automation going in place and the blow molding plants.
Plans for automation on the injection molding plants, but we need to do more there and then rode O as well as we're really trying to look at a few of these businesses Ie trilogy is a bit of a petri dish and can we can.
Can we test run can we pilot.
Some automation approaches and the rodeo business.
Yeah My mindset, our mindset is we want to be innovators, we want to take some smart risks and.
And go partner up with some of these innovative wrote a molding companies that can take two or three laborers off of.
Off of a machine and you are taking your labor down by 50% again very early innings very early innings, but I think that's just going to be sustained theme over the next five to 10 years.
It has the Avi, there's just not enough labor up do what we need.
Right and the last question, you said paying a fair price for M&A, but not overpaying is critical for success. How are you determining fair price on these acquisitions is it based on how you see revenue synergies or on return on capital based on current EBIT or just what's your process.
Yeah.
What we look at as we just go back to an EBITDA multiple we look at return on capital.
What I find typically as we want to invest and grow these businesses.
And for a lot of these found her own businesses, where this is their legacy and this is their life's work, but they want to transfer this to an owner that has the same value value system, and we will invest in capital invest in their people and grow it and not cut it and not not go through and have more of an aggressive approach most of the time.
I'm.
It's a little bit backwards as a strategic my argument is.
I will buy these businesses, we will invest in them, we will nurture and grow the management teams, we're not going to cut them and cut SG&A. Because this is a growth story, but.
But because of that I may not be able to pay I may only be able to pay a turner to less in private equity.
And for the right buyers, who really care about their right sellers, who care about their legacy and care about their work family it resonates.
And so.
We take a more gentle approach on cost synergies now allow the cost synergies Steve come through raw materials.
A little bit of foot footprint consolidation, a little bit of attrition.
But a lot of it comes through raw materials, and we're buying almost 150 million pounds of resin now and we've got a good by physician there.
And so I would say the acquirer of choice it's.
It's the same model that I had in my prior company that really worked well for certain founder owners, who wanted liquidity.
The consequence of that light touch approach is that we can't pay as much as as private equity and it actually kind of keeps us out of those options to be honest.
Right understood Ah. Thanks, again for all the time and good luck and four Q.
Six eight sir thank you. Thank you.
Thank you, Steve and that concludes today's cool. Thank you very much for joining today you may now disconnect your lines. Thank you.
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