Myers Industries, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; unaudited. Dollar amounts below are in millions unless otherwise noted. Myers operates Material Handling, which manufactures reusable plastic and other products, and Distribution, which supplies tire-service and automotive repair products.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $208.5 | $233.2 | $424.2 | $458.6 |
| Gross profit | $68.4 | $74.7 | $139.5 | $146.6 |
| Gross margin | 32.8% | 32.0% | 32.9% | 32.0% |
| Operating income | $16.1 | $22.6 | $35.1 | $47.0 |
| Net income | $10.6 | $15.8 | $23.6 | $33.2 |
| Diluted EPS | $0.29 | $0.43 | $0.64 | $0.91 |
| Net interest expense | $1.8 | $1.2 | $3.4 | $2.4 |
Q2 sales fell 10.6% year over year and net income fell 33.0%; first-half sales declined 7.5% and net income declined 28.9%. Gross margin improved despite lower sales, while operating income declined in both periods.
- Q2 segment sales: Material Handling $143.3 million, down 17.2%; Distribution $65.2 million, up 8.5%. Distribution operating income was $3.4 million versus $4.3 million; Material Handling operating income was $24.8 million versus $28.0 million.
- Cash flow, first half: Operating cash flow was $48.6 million, compared with $34.3 million. Accounts receivable reductions were a key driver. Investing cash outflow was $15.2 million, including $15.2 million of capital expenditures; financing cash outflow was $26.0 million, including $15.0 million of net revolving-credit repayments and $10.3 million of dividends.
- Liquidity and debt at June 30: Cash was $30.7 million. Debt was $79.0 million before deferred financing costs, plus $9.2 million of finance leases; management reported total debt including finance leases of $88.2 million. The company reported $203.3 million available under its $250 million revolving facility and compliance with debt covenants. The leverage ratio was 0.87 against a 3.25 maximum; interest coverage was 15.68 against a 3.00 minimum.
- Other metrics: Effective tax rate was 26.1% for Q2 and 25.5% for the first half. Total assets were $542.7 million and shareholders’ equity was $274.4 million at June 30.
Material changes and management commentary
- Management attributed lower sales primarily to $33.2 million of lower volume and mix in Q2 and $58.3 million in the first half, following unusually strong prior-year demand for outdoor-focused products during the pandemic-related consumer spending surge. Material Handling accounted for most of the decline.
- Distribution benefited from Mohawk acquisition sales of $9.3 million in Q2 and $23.1 million in the first half, as well as higher pricing. These gains were partly offset by lower volume and mix. Additional Distribution price increases began in February 2023.
- Gross margin improvement reflected lower material costs, pricing and Mohawk; management also cited increased labor and productivity costs. Interest expense rose as borrowing rates increased, despite lower average borrowings. Weighted-average borrowing rates were 6.75% in Q2 and 6.59% for the first half, versus 3.97% and 4.05% in the prior-year periods.
- Management said cash, operating cash generation and borrowing availability should be sufficient for expected working capital, capital expenditures, dividends, debt service and selective growth. 2023 capital expenditures were expected to be approximately $25 million to $30 million. The filing provides no specific revenue or earnings guidance.
Risks, contingencies and unusual items
- Environmental matters: New Idria Mine reserves totaled $12.1 million, with $6.2 million of probable insurance recovery receivable. The company has not accrued potential site remediation costs because it cannot reasonably estimate them while the remediation strategy remains undetermined. New Almaden Mine reserves were $4.5 million; the county project was bid at approximately $9.0 million, and the company disputes responsibility for the full cost increase.
- Legal matters: Scepter prevailed at trial in a patent infringement case, and remaining claims were dismissed; the plaintiff may appeal, and post-trial motions were pending. A separate fuel-container injury lawsuit was in early proceedings, and the company said the outcome and damages could not yet be meaningfully assessed.
- Debt maturity and rates: $26 million of senior unsecured notes mature January 15, 2024; another $12 million mature in 2026. The revolving facility matures in September 2027. The company had no interest-rate swaps; a 1% rate increase was estimated to raise annual variable interest expense by approximately $0.4 million.
- Other items: First-half results included $2.3 million of net environmental expense and $1.3 million of acquisition-related consulting costs. The company cited inflation, commodity and resin costs, labor availability, supply-chain disruption, customer demand, competition, and macroeconomic uncertainty as risks. Disclosure controls were assessed as effective, with no material change in internal control reported.
Most important facts for investors to verify
- Whether demand and product mix in Material Handling stabilize after the prior-year pandemic-related surge, and whether Distribution pricing offsets weaker volumes.
- Whether gross-margin gains from lower materials and pricing persist amid labor, productivity and commodity-cost pressures.
- How Myers plans to repay or refinance the $26 million of notes due in January 2024 and how floating-rate borrowing costs evolve.
- Whether environmental estimates, insurance recoveries and the New Almaden cost dispute change materially; potential New Idria remediation costs remain unestimable.
- Developments in the patent-case appeal and the pending fuel-container injury litigation.