Myers Industries, Inc. — Q1 2020 Form 10-Q
Reporting period: Quarter ended March 31, 2020; comparison is with Q1 2019. Myers designs, manufactures and distributes plastic and rubber products through its Material Handling and Distribution segments. Amounts below are in millions, except per-share data.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | $122.3 | $139.1 | Down 12% |
| Gross profit | $42.5 | $45.6 | Down 7% |
| Gross margin | 34.8% | 32.7% | Up 2.1 percentage points |
| Operating income | $23.3 | $10.2 | Includes a $11.9 gain in 2020 |
| Net income | $16.7 | $6.8 | 2020 continuing operations only |
| Diluted EPS | $0.47 | $0.19 | |
| Operating cash flow, continuing operations | $5.0 | $5.3 |
Material Handling sales fell 18% to $84.1 million, largely from lower vehicle, food and beverage, and industrial volumes. Distribution sales rose 6% to $38.2 million, including $5.0 million of incremental Tuffy acquisition sales, partly offset by lower volume. Lower commodity resin costs supported gross margin improvement. SG&A decreased 10% to $31.1 million, although it rose as a percentage of sales to 25.4% from 24.8%.
Reported earnings benefited materially from the January 2020 settlement with HC: Myers received $1.2 million and was released from a lease guarantee, recognizing a $11.9 million pretax gain. The guarantee liability had been $10.7 million. Operating income and net income therefore should not be viewed as solely reflecting recurring operations. The 2019 comparison also included $0.9 million of impairment and restructuring charges and $0.1 million of discontinued-operations income.
Financial position, liquidity and capital
- Cash was $73.2 million at March 31, 2020, down from $75.5 million at year-end 2019. Current assets were $190.6 million and current liabilities $119.8 million.
- Debt had $78.0 million face value outstanding ($77.3 million net of financing costs); $39.9 million was classified as current, including the $40 million senior note due January 15, 2021. The remaining notes mature in 2024 and 2026.
- The $200 million revolving facility had $194.2 million available, after $5.8 million of letters of credit. No revolving borrowings were outstanding. Myers reported compliance with covenants: interest coverage of 14.04 versus a 3.00 minimum and leverage of 1.22 versus a 3.25 maximum.
- Cash used in investing activities was $2.0 million, including $2.5 million of capital expenditures and a $0.7 million Tuffy working-capital adjustment; cash dividends paid were $4.9 million. Full-year 2020 capital expenditures were expected to be approximately $15 million.
Outlook, risks and notable matters
- The filing provides no quantified revenue or earnings guidance. Management said COVID-19 created significant uncertainty for the remainder of 2020, while asserting that cash, borrowing capacity, product diversity and customer diversity positioned the company to manage through it.
- Most businesses were operating as essential suppliers, but two Ameri-Kart manufacturing facilities and the Central America Distribution business were temporarily closed due to regulatory requirements. Management warned of possible demand, supply-chain, operating and regulatory impacts; the duration and magnitude were uncertain.
- The Ameri-Kart facility consolidation was expected to be substantially complete in the second half of 2020. Estimated total restructuring costs were approximately $1.1 million, with expected annualized benefits of approximately $1.5 million. A new 15-year lease was expected to commence after construction, with approximately $13.5 million of minimum payments over the initial term.
- Environmental reserves included $6.6 million for the New Idria mine and $1.5 million for the New Almaden mine. New Idria remediation costs were not accrued because the final remediation strategy could not yet be estimated; the company noted potential insurance recovery but had not recognized it.
- A patent infringement and related claims lawsuit involving Scepter remained unresolved; no reserve was recorded because the outcome could not be determined. The company also accrued $1.4 million for replacement of defective Material Handling boxes.
- Management reported no material impact from the CARES Act expected at the time of filing. The effective tax rate was 24.8%, versus 27.6% a year earlier.
Important facts for investors to verify
- How much of reported Q1 profit reflects the one-time $11.9 million HC settlement gain, and how underlying segment performance develops.
- The timing and refinancing or repayment plan for the $40 million note due January 2021, alongside covenant headroom and revolving-credit availability.
- The duration and business effects of COVID-related closures, demand weakness, and any supply-chain disruption.
- Changes to environmental reserves, remediation estimates, insurance recoveries, and the status of the Scepter litigation and product-replacement costs.
- Whether the Ameri-Kart consolidation meets its projected completion date, cost estimate and annualized savings.