MYE

Myers Industries Inc. - 10-Q Summary (Period Ended Sep 30, 2010)

Business Context and Reporting Period

This filing is a quarterly report (Form 10-Q) for Myers Industries, Inc., an Ohio-based manufacturer of plastic and rubber products, for the period ended September 30, 2010. The company operates through four segments: Lawn and Garden, Material Handling, Distribution, and Engineered Products (formerly Automotive and Custom). The company is classified as an accelerated filer.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 13% in Q3 and 7% for the nine-month period compared to 2009, driven primarily by higher sales volumes and favorable foreign currency translation.
• Profitability Improvement: The company returned to profitability, reporting net income of $3.2 million in Q3 2010 compared to a net loss of $5.3 million in Q3 2009. This turnaround was aided by the absence of significant impairment charges ($1.9 million in Q3 2009) and restructuring costs ($3.9 million in Q3 2009) that impacted the prior year.
• Margin Pressure: Gross profit margins for the nine months declined to 21.9% from 26.0% in the prior year due to significantly higher raw material costs (plastic resins up 60% for polypropylene and 32% for HDPE). Management offset these costs through price increases and sales mix optimization.
• Segment Performance: The Engineered Products segment saw the strongest growth (27% increase for nine months), while the Lawn and Garden segment remained unprofitable for the nine-month period ($3.3 million loss) due to margin compression.

Outlook, Risks, and Management Commentary

• Capital Expenditures: Capital spending was $14.5 million for the nine months, with a full-year expectation of $20 to $25 million.
• Debt Management: The company holds $65 million in Senior Notes maturing in December 2010. Management expects to retire these notes using funds from its Credit Agreement, which would reduce annual interest expense by approximately $3 million. The Credit Agreement expires in October 2011, and management anticipates successful refinancing.
• Liquidity: As of September 30, 2010, the company had approximately $244 million available under its Credit Agreement. It remains in compliance with all debt covenants (Interest Coverage Ratio: 3.5; Leverage Ratio: 1.9).
• Legal Contingencies: The company is identified in a California Regional Water Quality Control Board planning document regarding mercury in the Guadalupe River Watershed. While a claim is reasonably possible, the company cannot currently estimate remediation costs or determine if they would be material.
• Market Risks: The company faces exposure to floating interest rates and foreign currency fluctuations (primarily Canadian and Brazilian operations), though it maintains a systematic program to limit exposure.

Investor Verification Checklist

• Raw Material Costs: Verify the sustainability of price increases passed to customers to offset the 60% increase in polypropylene costs.
• Debt Refinancing: Monitor the refinancing of the $65 million Senior Notes due December 2010 and the renewal of the Credit Agreement in October 2011.
• Lawn & Garden Segment: Assess the turnaround plan for the Lawn and Garden segment, which reported a loss of $3.3 million for the nine-month period.
• Environmental Liability: Track developments regarding the California mercury contamination claim to determine potential future remediation costs.
• Working Capital: Review the $17.8 million increase in accounts receivable, which consumed cash flow in the nine-month period.