Myers Industries, Inc. — Q3 2022 Form 10-Q
Business and reporting period: Unaudited results for the quarter and nine months ended September 30, 2022, compared with the same 2021 periods. Myers operates Material Handling, which manufactures reusable plastic products and containers, and Distribution, which supplies tire-service and automotive under-vehicle equipment, tools and products. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $228.1 | $200.1 | $686.7 | $561.9 |
| Gross profit | $71.6 | $54.2 | $218.3 | $159.6 |
| Gross margin | 31.4% | 27.1% | 31.8% | 28.4% |
| Operating income | $19.9 | $11.8 | $66.9 | $38.6 |
| Net income | $13.7 | $7.9 | $46.8 | $26.3 |
| Diluted EPS | $0.37 | $0.22 | $1.28 | $0.72 |
| SG&A as % of sales | 22.7% | 21.3% | 22.1% | 21.7% |
- Cash flow: Nine-month operating cash flow was $50.8, versus $13.5 in 2021. Investing used $40.3, including $24.3 for Mohawk and $17.6 of capital expenditures. Financing used $7.4. Cash rose to $20.4 from $17.7 at year-end 2021. Operating cash flow less capital expenditures was approximately $33.1.
- Liquidity and debt: Current assets were $267.9 and current liabilities $153.3 at September 30. The company reported $184.3 available under its $250 revolving credit facility, after borrowings and letters of credit. Long-term debt was $98.0; total debt including finance leases was reported as $107.5. The company was compliant with debt covenants; actual interest coverage was 21.31 versus a 3.00 minimum, and leverage was 1.01 versus a 3.25 maximum.
- Dividends: $0.135 per share declared in Q3; $0.405 per share declared in the first nine months. Cash dividends paid in the nine-month period were $14.9.
Changes versus prior comparable periods
- Q3 sales increased 14.0%; nine-month sales increased 22.2%. Management attributed the nine-month increase principally to $86.7 of higher pricing and $46.6 of incremental sales from acquisitions, partly offset by $7.6 lower volume/mix and $0.9 unfavorable currency translation.
- Q3 Material Handling sales rose 4.0% to $155.7; Distribution sales rose 43.6% to $72.4. For nine months, sales grew 21.3% in Material Handling and 25.0% in Distribution.
- Gross margin expanded in both periods, with pricing and acquisitions contributing; higher raw material and labor costs and unfavorable mix partly offset the benefit. SG&A rose 21.7% in Q3 and 24.4% for nine months, including acquisition costs, compensation and environmental charges.
- Q3 net interest expense increased 62.8% to $1.7, reflecting higher average borrowings and a higher weighted-average borrowing rate of 5.50% versus 4.24%. Nine-month interest expense increased 33.7% to $4.1.
- Mohawk, an auto aftermarket distributor, was acquired May 31, 2022; cash consideration was $24.3, with about $3.3 of additional working-capital and other consideration estimated. The company also continued to include Trilogy, acquired in July 2021, in Material Handling.
Outlook, commentary and risks
- Management expected full-year 2022 capital expenditures of approximately $25–$28 million and said cash, operating cash flow and available credit were expected to support working capital, capital spending, dividends, debt service and selective acquisitions. No earnings or revenue guidance was stated in the provided filing text.
- The revolving credit facility maturity was extended to September 2027; its $250 million borrowing limit was unchanged. At September 30, variable-rate debt exposure was approximately $60 million; management estimated a 1 percentage-point rate increase would raise annual variable interest expense by about $0.6 million. No interest-rate swaps were in place.
- Management cited inflation, volatile commodity and resin costs, supply-chain disruption, labor availability, interest rates, geopolitical uncertainty and changing demand as risks. It noted that higher pricing helped results, while lower volume/mix affected sales in some businesses.
- Environmental matters: The New Idria Mine reserve was $10.5 million; remediation costs were not accrued because the strategy and liability could not be estimated. The company had reached an agreement in principle to settle the EPA’s past-cost claim for $1.9 million, pending a final agreement. It reported a separate $1.5 million New Almaden reserve. Management cautioned that estimates may change.
- Litigation: A patent-infringement case involving Scepter was scheduled for trial in March 2023. Management said an unfavorable outcome was not considered probable and potential losses were not reasonably estimable; no contingent loss was recorded.
- Disclosure controls were deemed effective as of September 30, 2022. The internal-control evaluation did not include Mohawk, though oversight and monitoring processes were being extended to its operations.
Key investor verification points
- Assess whether pricing can continue to offset resin, labor and other cost inflation, and whether lower volume/mix persists.
- Verify acquisition contribution and integration, including Mohawk’s final working-capital adjustments and purchase-price allocation.
- Monitor cash conversion and working-capital growth, particularly receivables and inventory, alongside planned capital expenditures and dividends.
- Review refinancing and interest-rate exposure, including the $26 million of notes due January 2024 and covenant headroom.
- Track New Idria investigation costs, final EPA settlement documentation and remediation uncertainty; also monitor New Almaden and the Scepter trial.