Myers Industries, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. Myers operates Material Handling and Distribution businesses, serving industrial, consumer, automotive, food and beverage, and other markets. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $187.4 | $118.4 | $361.8 | $240.6 |
| Gross profit | $55.0 | $42.6 | $105.4 | $85.1 |
| Gross margin | 29.4% | 36.0% | 29.1% | 35.3% |
| Operating income | $15.9 | $12.3 | $26.7 | $35.6 |
| Net income | $11.1 | $8.4 | $18.4 | $25.1 |
| Diluted EPS | $0.30 | $0.23 | $0.51 | $0.70 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $21.3 | $11.8 |
Q2 sales increased 58.3%; management attributed the increase to higher volume/mix, $30.9 million of incremental Elkhart Plastics sales, pricing, and favorable currency translation. Both segments grew: Material Handling sales rose 69.7% and Distribution sales rose 33.6%. Q2 gross profit increased, but gross margin fell 6.6 percentage points as resin and other raw-material costs rose faster than pricing recovery. SG&A was $40.1 million, up 32.3%, including acquisition-related costs and higher compensation, legal/professional fees, and variable selling expenses.
First-half sales rose 50.3%, but net income declined 26.8%. The main comparison factor was a $11.9 million gain recognized in first-half 2020 on the settlement and sale of notes receivable and release from a lease guarantee. First-half 2021 also included $1.0 million of gain on sale of a facility and $0.8 million of executive severance expense.
Cash, debt, and liquidity
- Cash was $13.5 million at June 30, down from $28.3 million at year-end. First-half cash decreased $14.8 million.
- Operating cash flow was $21.3 million; capital expenditures were $8.2 million. Investing activities used $6.6 million, while financing activities used $29.5 million.
- At June 30, reported long-term debt, net of financing costs, was $57.8 million. Management reported total debt of $68.1 million including $10.2 million of finance lease liabilities. The company had $224.3 million available under its $250 million revolving facility, after borrowings and letters of credit.
- The revolving facility was amended in March 2021: its limit increased from $200 million to $250 million and maturity extended to March 2024. The company repaid $40.0 million of notes due in January 2021 using cash and revolving-credit proceeds.
- Management reported compliance with debt covenants; actual interest coverage was 16.79 versus a 3.00 minimum, and leverage was 0.99 versus a 3.25 maximum.
- Current assets were $201.2 million and current liabilities $127.1 million. Dividends paid in the first half were $9.8 million.
Outlook, risks, and notable items
- Management expected to realize incremental benefits from pricing increases introduced beginning in February 2021 to address rising raw-material costs. Full-year 2021 capital expenditures were projected at approximately $15–$18 million; no earnings or revenue guidance was provided.
- On July 30, 2021, after quarter-end, Myers acquired Trilogy Plastics, expected to add approximately $35 million in annual sales. The acquisition was funded with the revolving facility. Elkhart Plastics, acquired in November 2020, had historical annual sales of approximately $100 million.
- The Ameri-Kart facility consolidation was expected to be substantially completed in 2021, with approximately $1.3 million of total restructuring costs expected. A 15-year finance lease for the new Bristol, Indiana facility commenced in March; construction was still in process at quarter-end.
- Key disclosed risks include rising resin and other input costs, supply and operating disruptions, customer demand and pricing pressures, COVID-19 uncertainty, and execution of growth initiatives. Myers had no commodity-price derivatives; it estimated a one-percentage-point rise in interest rates would increase annual variable interest expense by about $0.2 million.
- Environmental reserves included $7.2 million for the New Idria Mine and $1.5 million for New Almaden. New Idria estimates remain uncertain pending regulatory work-plan approval and determination of remediation needs; potential insurance recoveries were not recorded.
- In ongoing patent litigation involving Scepter and No Spill, the court found asserted patent claims definite, and the patent office found one patent’s claims valid in July 2021. Myers said it could not predict the outcome and had recorded no reserve.
Important facts for investors to verify
- Whether pricing catches up with resin and other input-cost inflation, and the resulting effect on gross margins.
- How much reported sales growth reflects organic volume/pricing versus Elkhart Plastics and the prior-year pandemic comparison.
- Post-quarter Trilogy acquisition financing, integration, and actual contribution relative to its stated approximate $35 million annual sales.
- Cash conversion and working-capital needs, capital spending, dividends, and revolving-facility usage.
- Updates to environmental reserves, the New Idria remediation process, and the Scepter patent litigation.