Myers Industries, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; quarterly comparisons below are for the three months ended December 31. Amounts are U.S. dollars unless stated otherwise.
Business context
Myers Industries manufactures polymer and other products for material handling, storage, vehicle, consumer and industrial markets, and distributes tools, equipment and supplies for tire and vehicle service. It reports two segments: Material Handling and Distribution. In August 2019, it acquired Tuffy, a tire-repair-equipment distributor, for approximately $18.7 million; Tuffy contributed $7.2 million of 2019 sales. The Brazil business and Lawn and Garden business are reported as discontinued operations.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $515.7 million | $566.7 million |
| Gross profit / margin | $171.3 million / 33.2% | $179.3 million / 31.6% |
| Operating income | $37.3 million | $6.3 million |
| Continuing-operations income (loss) | $24.2 million | $(1.6) million |
| Net income (loss) | $24.3 million | $(3.3) million |
| Diluted continuing-operations EPS | $0.68 | $(0.05) |
| Cash from continuing operations | $47.0 million | $60.4 million |
Fourth-quarter net sales were $116.8 million versus $138.4 million in 2018; operating income was $8.8 million versus $7.0 million, and net income was $5.7 million versus $2.3 million.
Material Handling sales fell 15% to $356.4 million, mainly on lower food-and-beverage and vehicle-market volumes. Distribution sales rose 7% to $159.4 million, reflecting Tuffy, higher volume and pricing. Consolidated sales declined 9%, primarily from a $58.3 million volume reduction; pricing and Tuffy partly offset the decline. Gross margin improved on lower commodity costs and better Material Handling productivity, partly offset by a $3.5 million estimated charge for replacement of defective boxes. SG&A declined 4% to $133.1 million.
Operating cash flow from continuing operations decreased by $13.4 million, chiefly due to working-capital changes. Capital expenditures were $10.3 million; the company paid $19.3 million in dividends. Year-end cash was $75.5 million, working capital $102.4 million, and total debt face value $78.0 million (carrying value $77.2 million). The company had $194.2 million available under its $200 million revolving facility, was in covenant compliance, and reported a 14.26x interest-coverage ratio against a 3.00x minimum and 1.20x leverage against a 3.25x maximum. Annual dividends remained $0.54 per share.
Material changes, outlook and notable items
- The 2018 results included $33.3 million of unusual charges related to the Lawn and Garden sale: a $23.0 million provision against promissory notes and a $10.3 million lease-guarantee charge. This substantially affected the year-over-year increase in operating income and the comparison of net results.
- In January 2020, Myers sold the fully reserved HC promissory notes for $1.2 million and obtained release from the lease guarantee. It expected to recognize an $11.9 million pretax gain in first-quarter 2020; this was not 2019 income.
- The Distribution Transformation Plan was substantially completed in 2019. Management expected annualized benefits of $5–$7 million. The Ameri-Kart facility consolidation was expected to finish in the second half of 2020, with approximately $1.1 million of remaining restructuring costs and expected annualized benefits of about $1.5 million.
- Management stated that cash, operating cash flow and credit availability should support operating needs, capital expenditures, dividends, debt service and selective acquisitions. No specific earnings or revenue guidance was provided in the supplied filing text.
- Environmental matters include a $6.7 million reserve for New Idria investigation and feasibility-study costs and a $1.5 million reserve for New Almaden. The ultimate New Idria remediation liability could not be estimated; estimates may change as the EPA reviews the work plan. The company also disclosed an unresolved patent-infringement suit and an IRS audit of its 2017 federal return.
- Management identified raw-material price and supply volatility, cyclical demand, competition, acquisition integration, operational disruption, environmental regulation, product claims, cybersecurity and economic uncertainty as risks. The filing noted that the coronavirus outbreak’s business impact was uncertain. The CEO resigned in October 2019; Andrean Horton became interim CEO. Auditors issued unqualified opinions on the financial statements and internal controls; Tuffy was excluded from the internal-control assessment.
Key facts for investors to verify
- Whether Material Handling volumes stabilize, and whether Distribution growth continues excluding Tuffy’s contribution.
- Delivery, cost and savings realization for the Ameri-Kart consolidation and Distribution Transformation Plan.
- Final costs and potential insurance recoveries for environmental matters, particularly New Idria, and developments in the patent case and IRS audit.
- Recognition and tax treatment of the expected $11.9 million HC-related gain in first-quarter 2020, and the status of the Bristol facility lease and sale.
- Cash conversion, dividend sustainability, debt maturities beginning in 2021, and continued compliance with credit covenants.