Myers Industries, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.
Business context
Myers operates two reportable segments: Material Handling, which manufactures plastic products, and Distribution, which sells tire-service and automotive repair equipment and supplies. Results include the acquisitions of Elkhart Plastics (November 2020) and Trilogy Plastics (July 2021), as well as comparisons with periods affected by the onset of COVID-19.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $200.1 | $132.3 | $561.9 | $372.9 |
| Gross profit | $54.2 | $47.1 | $159.6 | $132.1 |
| Gross margin | 27.1% | 35.6% | 28.4% | 35.4% |
| Operating income | $11.8 | $13.1 | $38.6 | $48.7 |
| Net income | $7.9 | $8.7 | $26.3 | $33.8 |
| Diluted EPS | $0.22 | $0.24 | $0.72 | $0.94 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $13.5 | $31.3 |
Quarterly sales rose 51.3%; nine-month sales rose 50.7%. Management attributed the nine-month increase to $98.9 million from acquisitions, $63.5 million from volume/mix, $24.3 million from pricing, and $2.3 million from currency. Material Handling sales grew 72.5% in the quarter and 65.6% year to date; Distribution sales grew 10.8% and 19.7%, respectively.
Profitability did not keep pace with sales: gross margin fell 8.5 percentage points in Q3 and 7.0 points year to date. Management cited rising raw-material and labor costs, including a $1.6 million LIFO reserve increase, which pricing actions had not fully offset. SG&A was $42.5 million in Q3 and $122.2 million year to date. Nine-month operating income also compared against a prior-year period that included an $11.9 million gain on sale of notes receivable; 2021 included a $1.1 million gain on fixed-asset disposal.
Cash, debt and liquidity
- Cash was $14.8 million at September 30, 2021, down from $28.3 million at December 31, 2020.
- Operating cash flow was $13.5 million, versus $31.3 million in the prior-year nine-month period; the filing attributes the decline mainly to higher receivables and inventory.
- Investing cash outflow was $46.7 million, including $35.5 million for acquisitions and $14.3 million of capital expenditures. Financing provided $19.7 million, including $73.4 million of net revolving-credit borrowings.
- Long-term debt was $111.3 million, plus $10.1 million of finance lease liabilities. The company reported $170.8 million of availability under its $250 million revolving facility, after borrowings and letters of credit.
- The revolving facility was extended to March 2024. The company reported compliance with debt covenants; actual interest coverage was 17.43 against a 3.00 minimum, and leverage was 1.70 against a 3.25 maximum.
- The company declared dividends of $0.135 per share for Q3; $14.7 million of dividends were paid during the first nine months.
Outlook, commentary and risks
- Management expected incremental benefits from pricing increases introduced beginning in February 2021, while noting that price had not yet fully offset raw-material and labor inflation.
- Full-year 2021 capital expenditures were expected to be approximately $16 million to $19 million. Management said cash, operating cash flows and borrowing capacity should cover expected business needs, including working capital, capital expenditures, dividends, debt service and selective acquisitions.
- Management identified continuing uncertainty from COVID-19, supply-chain disruptions and labor availability. Other stated risks include raw-material cost or availability, customer demand, competition, operational interruptions, and the execution and benefits of growth initiatives.
- Environmental contingencies included reserves of $7.2 million for the New Idria Mine and $1.5 million for the New Almaden Mine. New Idria remediation costs could change as investigation and planning proceed; the company had not accrued for ultimate remediation costs because they could not be estimated. The filing also describes patent litigation involving Scepter companies; no reserve was recorded because the outcome could not be determined.
- The Ameri-Kart facility-consolidation plan was expected to be substantially complete in 2021; total restructuring costs were estimated at approximately $1.3 million. Construction at the new Bristol facility remained in process at quarter end.
Most important facts to verify
- Whether pricing and productivity can recover the substantial gross-margin decline as input and labor costs evolve.
- How much reported sales growth and future earnings depend on the acquired businesses, and whether expected integration benefits materialize.
- Whether working-capital requirements continue to constrain operating cash flow and increase reliance on revolving borrowings.
- Potential changes to environmental liabilities and the timing and outcome of the patent litigation.
- Whether 2021 capital spending and the Ameri-Kart consolidation remain within management’s stated expectations.