Monica Vinay: Thanks, Lance.
Operator: Our next question is from Steve Barger from KeyCorp. Steve, your line is now open. Please go ahead.
Steve Barger: Thanks. Mike, it seems like you’ve already put a lot of workflow improvements in for sales, purchasing and operations. How much of an incremental change is the Myers operating system going to be? And what kind of results do you expect it can produce?
Michael McGaugh: Yes, Steve, it’s a good question. I would say, in general, we are six out of 10; seven out of 10; four or five out of 10 in some functions. And what we found was we brought in a lot of outside capability on all the areas you talked about, manufacturing, purchasing, pricing, finance processes, sales and marketing processes. But what we needed to do was we needed to package it together and leverage it more. And so I’d say that we’re — nominally, we’re halfway there. So to package this up and leverage across all of our businesses is the remaining one-half of value creation. But we also felt, Steve, in order to really scale as we acquire companies, we need to have this lock it down, documented and crystallized.
And we also wanted to outload any of us. And so we’ve got a lot of experts here. As you all know, I’ve brought in a number of people who are kind of at the twilight of their careers. They’re very, very good. But what I said is, look, we need to crystallize this lock it down, document it and be able to replicate it independent of the FTE, independent of the people in the chairs. And so really, this is more about resiliency, longevity of all the good things we brought here, I want to be sure that they continue to live on. They’re part of our DNA and that we can seamlessly apply them to acquisitions. And so I’d say — yes, I’d just saying nominally, Steve, we’re halfway to where I think we should be.
Steve Barger: And I know this will be a continual process, but how long does it take to get from halfway to 80% or 90%?
Michael McGaugh: Yes. That’s our work focus for €˜23 and €˜24 €“ yes, ’23 and €˜24. We’ve got a lot of documentation on here. We’re a smaller company. We can’t do it all in one shot, because I don’t want to dilute ourselves. They’d rather do three things well in a given year rather than chase 10 or 11 things. So we’re really focused. But codifying, crystallizing this operating system, also bringing in a more robust approach to IT and updating our IT systems. Those are the two flanges, coupling that with what we’re calling our M&A technology center, our M&A expertise center. Those pieces, the expertise center on M&A, the operating system, coupled with renewal on IT, those three pieces are going to allow us to be — to have more success in an acquisition mode, acquiring companies that may be outside of the scope of plastic products, metal products.
And so we feel we have the right people who can do that. But that’s the work we’re doing over the course of the year 2023 and 2024, because that’s what’s going to drive us from, let’s say, $1 billion and change, $1.5 billion to $3 billion or $4 billion or more. But if those three pieces — those three legs of the stool. And again, that’s what we plan to talk about on subsequent calls, quite frankly.
Steve Barger: Well, since you brought it up, what would you contemplate outside the scope of plastic or metal products?
Michael McGaugh: You know, so if you look at our business, and Steve, if you look at it and we’re really more in the storage and handling business. So we make high-performance branded products that move, store and organize. So if we look at our businesses in that lens rather than as a Buckhorn or Ecomills lens, you get some confidence in other things we can do in the storage and handling world or an auto aftermarket. Auto aftermarket, we make and sell high-quality repair and replacement parts for passenger cars, commercial vehicles, heavy equipment. We can broaden that scope. We do some of that. Well, but what else could we do that? And then again, designed and engineered products, designed and engineered solutions. We do a lot in that space on the engineered product side, design product side.
What else can we do to bring high-performance value-added products to our customers. So those three silos and Steve, I’ll talk more about it in the future, it’s exciting. Because it takes all this operational excellence work, we’re doing, and it really expands our horizons without getting us into some esoteric end markets. We’re really trying to strike the right balance of opening the aperture, but also sticking to our roots and know-how. And we think by taking the operating system, IT updates, ERP update and then an expertise center on M&A, I think those are the three pieces of the ingredients that are really going to help the company fly. I’m really excited about it.
Steve Barger: Yes, I’m looking forward to hearing more about that. Your team did a nice job driving the 370 basis points of gross margin expansion from the inflation mitigation efforts. As you think about mix and the consumer products, the trends that you talked about, do you think you can hold gross margin where it was last year? Or is that likely to come down a little bit as you work through the first-half of the year? And I think the good question is about the full-year, but just as you think about the cadence?
Michael McGaugh: Yes. Let me just — Monica, do you want to hit that?
Monica Vinay: Yes, Steve, we would still — our focus and goal would still be to further expand gross margins in 2023, obviously not to the extent that we did in ’22, but we’re holding price wherever we can, and we’re going to continue on operational efficiencies in order to continue to drive further margin expansion.
Michael McGaugh: Yes. Steve, you saw a little bit of choppiness on the distribution margins. I think that was more related to — remember, that business bought a sizable participant in the market with Mohawk. And you have four, five, six months of integration with two IT and ERP systems and merging a large — very large sales force. And so you can see, based on that 7% EBITDA that our cost of goods got away from us a little bit. So we’ve since announced beginning of the year some really robust price increases in the distribution segment. And I believe we’ll start to see those show up in our financials in first quarter and second quarter. So on the distribution side, I feel good about the margins and the outlook there. And again, across the board, on the Material Handling side, we make high-quality niche products.
We have a good reputation, a good service level, we’ve been able to hold. And I think that’s — we’re going to continue to be able to hold, particularly as polyethylene lines a bit. I think we’re going to continue to have some expansion.
Steve Barger: As I — just last question, as I think those — through those two things that you just talked about for Distribution and Material Handling, does — should I think that Distribution outgrows this year, because of the weakness in the first-half? Or can Material Handling make it up in the back half and outgrow Distribution?
Michael McGaugh: I’ll look to Monica for the specifics. A bit of it is there’s just — there are some unknowns in there. There are some unknowns in those end markets, Steve. I’m — I feel pretty good about distribution. But let me — go ahead, Monica, why don’t you
Monica Vinay: Yes. I would say, currently, just based on the choppiness, we’re outside of Mohawk, we’re looking for distribution to still grow organically in the low single-digit range, low to mid-single, like just like our outlook. Whereas Material Handling is more likely to be comparable to last year, as I said in the remarks.
