Myers Industries, Inc. — FY2013 Form 10-K
Reporting period: Year ended December 31, 2013; filed March 11, 2014. The company manufactures polymer and rubber products and distributes tire-service tools, equipment and supplies through four segments: Material Handling, Lawn and Garden, Distribution, and Engineered Products.
Financial performance
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $825.2 million | $791.2 million |
| Gross profit / margin | $217.6 million / 26.4% | $215.3 million / 27.2% |
| Operating income | $43.9 million | $51.9 million |
| Income before taxes | $39.4 million | $47.3 million |
| Net income | $26.0 million | $30.0 million |
| Diluted earnings per share | $0.76 | $0.88 |
| Cash from operating activities | $96.1 million | $60.8 million |
| Capital expenditures | $30.0 million | $27.0 million |
Sales rose 4%, but operating income fell about 15% and net income fell about 13%. Gross margin declined 0.8 percentage points. Management cited higher raw-material costs—polypropylene and polyethylene averaged about 10% higher—along with approximately $10.0 million in additional restructuring and related costs. The effective tax rate was 34.0%, down from 36.7%.
Segment sales
| Segment | 2013 sales | Change vs. 2012 |
|---|---|---|
| Material Handling | $322.9 million | +13% |
| Lawn and Garden | $204.9 million | Down $0.9 million |
| Distribution | $177.4 million | Up $0.8 million |
| Engineered Products | $137.7 million | −3% |
Material Handling growth primarily reflected the full-year contribution from the 2012 Novel and Jamco acquisitions. Lawn and Garden sales were affected by order timing, unfavorable currency translation and production/distribution start-up issues. Engineered Products faced lower custom-market volume despite stronger recreational vehicle and marine demand.
Fourth-quarter results
Q4 2013 sales were $211.3 million versus $214.0 million in Q4 2012. Net income was $3.3 million versus $8.5 million, and diluted EPS was $0.10 versus $0.25. Gross profit was $49.9 million versus $57.2 million. The company recorded approximately $9.4 million of restructuring and related charges in Q4 2013, primarily in Lawn and Garden.
Cash, debt and liquidity
- Operating cash flow increased to $96.1 million, including $33.1 million provided by working capital; the filing attributes much of the working-capital improvement to timing of payments and vendor terms, including a $36.3 million increase in cash provided by accounts payable and accrued expenses versus 2012.
- At year-end, cash was $6.5 million, current assets $234.9 million, current liabilities $150.6 million and working capital $84.3 million. Working capital declined from $125.1 million in 2012.
- Debt, net of deferred financing costs, was $44.3 million, down from $92.8 million. The company had $161.2 million available under its $200 million revolving facility and was in compliance with debt covenants.
- In December 2013, the company replaced its credit facility with a $200 million revolving facility maturing in 2018 and repaid $35 million of 6.81% notes. It had received $11 million of a $100 million private placement by year-end; the remaining $89 million was received in January 2014.
- Dividends declared were $0.36 per share. The company repurchased $8.1 million of shares in 2013. The board authorized $40 million of repurchases for 2014.
Outlook, risks and unusual items
- No specific numerical 2014 earnings or revenue guidance is provided. Management said operating cash flows and available borrowing were expected to meet foreseeable business needs, including capital expenditures, dividends, debt service and the repurchase program.
- The Lawn and Garden restructuring includes closure of plants in Brantford, Ontario, and Waco, Texas, and reopening the Sparks, Nevada facility. Management expects most benefits—lower labor, overhead, plant and freight costs—to be realized during 2014 and 2015.
- Key risks include volatile plastic-resin and rubber input costs, limited ability to pass costs through, economic and competitive conditions, weather-related Lawn and Garden demand, manufacturing interruptions, foreign exchange exposure, and access to credit and covenant compliance.
- The company recorded a $1.9 million reserve in 2011 for investigation and feasibility work at the New Idria Mercury Mine; approximately $0.6 million had been charged against it by year-end 2013. Further remediation costs are not known. A possible separate Guadalupe River Watershed cleanup obligation could not be estimated.
- Foreign currency translation reduced 2013 comprehensive income; the translation adjustment was a $9.3 million loss. International sales were approximately 17% of continuing-operations sales.
- Ernst & Young issued an unqualified opinion on the financial statements and internal controls. Management and the auditor reported effective internal control over financial reporting as of December 31, 2013.
Important facts for investors to verify
- Whether planned Lawn and Garden restructuring savings materialize and whether start-up and transition issues are resolved.
- How much of 2013 operating cash flow is repeatable, given the significant contribution from payables and accrued-expense timing.
- Whether input-cost increases can be offset by pricing and productivity without further margin deterioration.
- The final cost and potential liability for the New Idria and Guadalupe River environmental matters.
- The effect of the January 2014 receipt of the remaining note-placement proceeds, subsequent debt and cash balances, and the planned $40 million share-repurchase authorization.