Myers Industries Inc. 10-Q Summary
Business Context and Reporting Period
Company: Myers Industries, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: The Company operates four reportable segments: Material Handling, Lawn and Garden, Automotive and Custom, and Distribution. Operations are impacted by general economic weakness, particularly in automotive and recreational markets.
Key Financial Metrics (Nine Months Ended Sept 30, 2009)
| Metric | 2009 (9 Months) | 2008 (9 Months) | Change |
|---|---|---|---|
| Net Sales | $513.5 million | $634.2 million | (19%) |
| Gross Profit | $133.3 million | $152.2 million | (12%) |
| Gross Margin | 26.0% | 24.0% | +2.0 pts |
| Operating Income | $12.8 million | $29.9 million | (57%) |
| Net Income (Loss) | $(1.6) million | $14.6 million | Loss vs. Profit |
| EPS (Diluted) | $(0.05) | $0.41 | N/A |
| Cash from Operations | $37.6 million | $17.2 million | +118% |
| Total Debt | $145.0 million | $171.6 million | (16%) |
| Cash & Equivalents | $7.8 million | $12.1 million | (35%) |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 19% year-over-year, driven by significant volume declines across all segments. The Lawn and Garden segment saw a 26% drop, and Automotive and Custom fell 32%.
- Profitability: Despite a 2% increase in gross margin (due to lower raw material costs and LIFO inventory liquidation), operating income fell 57% due to restructuring charges and lower volumes.
- Discontinued Operations: The Company recorded a net loss of $6.6 million from discontinued operations (Michigan Rubber Products and Buckhorn Rubber Products), including a $7.8 million impairment charge. The sale of these assets was completed in October 2009.
- Restructuring: The Company incurred $14.8 million in restructuring charges (severance, equipment movement) and $4.1 million in impairment charges during the nine-month period.
- Cash Flow: Operating cash flow improved significantly to $37.6 million, primarily due to a $16.5 million reduction in inventory levels.
Outlook, Risks, and Management Commentary
- Restructuring Plan: Management expects to incur an additional $2.0 million in restructuring charges in the fourth quarter of 2009. Plant closures in Reidsville, NC, and Shelbyville, KY, are anticipated to be completed by year-end.
- Liquidity: The Company maintains a $250 million credit facility with approximately $207 million available as of September 30, 2009. Management believes cash flows and borrowing capacity are sufficient to meet future requirements.
- Debt Covenants: The Company is in compliance with all debt covenants. The interest coverage ratio is 4.09 (required 2.5) and the leverage ratio is 2.01 (maximum 3.5).
- Risks:
- Environmental: The Company is identified in a California planning document regarding mercury contamination in the Guadalupe River Watershed. While a claim is reasonably possible, the cost cannot be estimated at this time.
- Legal/Safety: A fatal workplace accident occurred in October 2009 at the Springfield, MO facility. An OSHA investigation is underway; the Company believes it has adequate insurance coverage.
- Market: Continued weakness in the general economy and automotive markets poses a risk to sales volumes.
Investor Verification Checklist
- Discontinued Operations: Verify the final sale price and closing details of the Michigan Rubber Products and Buckhorn Rubber Products businesses sold in October 2009.
- Restructuring Costs: Monitor the fourth-quarter financials for the expected additional $2.0 million in restructuring charges and the completion of plant closures.
- Environmental Liability: Track any developments regarding the California Regional Water Quality Control Board (RWQCB) planning document and potential remediation costs.
- Segment Performance: Assess the recovery trajectory of the Lawn and Garden and Automotive segments, which faced the steepest volume declines (26% and 32% respectively).
- Debt Servicing: Confirm continued compliance with the interest coverage and leverage ratios under the $250 million credit facility.