Myers Industries, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Myers operates Material Handling, which manufactures plastic products, and Distribution, which supplies tire-service and automotive under-vehicle equipment and products. Unless stated otherwise, amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $233.2 | $187.4 | $458.6 | $361.8 |
| Gross profit | $74.7 | $55.0 | $146.6 | $105.4 |
| Gross margin | 32.0% | 29.4% | 32.0% | 29.1% |
| Operating income | $22.6 | $15.9 | $47.0 | $26.7 |
| Net income | $15.8 | $11.1 | $33.2 | $18.4 |
| Diluted earnings per share | $0.43 | $0.30 | $0.91 | $0.51 |
| Net interest expense | $1.2 | $1.0 | $2.4 | $2.0 |
Q2 sales grew 24.4% year over year; six-month sales grew 26.8%. Q2 gross profit rose 35.9%, while six-month gross profit rose 39.1%. The filing attributes the sales increases mainly to higher pricing and acquired sales, partly offset in Q2 by lower volume/mix. Higher pricing and acquisitions supported gross-margin improvement, while higher labor costs and unfavorable mix were offsets; the six-month discussion also cites higher raw-material costs.
For the quarter, Material Handling sales were $173.1 million, up 26.1%, and Distribution sales were $60.1 million, up 19.8%. Six-month sales increased 30.9% in Material Handling and 15.0% in Distribution. Q2 SG&A increased 30.4% to $52.3 million, reflecting higher compensation, variable selling and facility costs, professional fees, and acquisition-related expenses. Operating income also benefited from higher sales and gross profit.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $34.3 million, versus $21.3 million a year earlier. The increase reflected higher net income, partly offset by working-capital needs, including receivables and inventory.
- Investing cash outflow was $33.7 million, including $24.3 million for the Mohawk acquisition and $10.9 million of capital expenditures. Financing provided $4.3 million, including $13.0 million of net revolving-credit borrowings; dividends paid were $9.9 million.
- Cash was $22.4 million at June 30, 2022, compared with $17.7 million at year-end 2021. Current assets were $274.6 million and current liabilities $160.1 million.
- Debt was $104.0 million before deferred financing costs, including $66.0 million under the loan agreement and $38.0 million of senior notes. Including $9.7 million of finance lease liabilities, total debt was $113.6 million. The company reported $178.3 million available under its $250 million revolving facility and was in compliance with debt covenants.
- The company declared dividends of $0.135 per share for the quarter. Its disclosed actual leverage ratio was 1.17 against a maximum of 3.25; interest coverage was 22.31 against a minimum of 3.00.
Material changes, outlook and risks
- Mohawk Rubber Sales of New England was acquired on May 31, 2022, for $24.3 million cash consideration, net of cash acquired; the company estimated about $3.4 million of additional working-capital and other adjustments. Mohawk contributed $6.0 million of Q2 sales. Trilogy, acquired in 2021, contributed to year-over-year growth in Material Handling.
- Management expected full-year 2022 capital expenditures of approximately $25–$28 million. It stated that cash, operating cash flow and available credit were expected to cover business needs, including capital spending, dividends, debt service, working capital and selective acquisitions. No specific earnings or revenue guidance was provided in the filing text.
- Management identified inflation, volatile commodity and raw-material costs, supply-chain disruptions, labor availability, geopolitical uncertainty, changing demand, and COVID-19-related effects as business risks. The company had no derivatives to hedge floating-rate debt or raw-material prices; a 1 percentage-point increase in market rates was estimated to raise annual variable interest expense by about $0.7 million.
- Environmental contingencies include a $9.2 million reserve for the New Idria Mercury Mine. The company has not accrued for site remediation because it cannot estimate the liability before the remediation strategy is determined; estimates may change as work plans are finalized. A separate $1.5 million reserve relates to the New Almaden Mine. Management said legal matters were not expected to have a material adverse effect based on information then available, while noting possible adverse outcomes; a patent-infringement trial was scheduled for March 2023.
- The Ameri-Kart facility consolidation was expected to be substantially completed in 2022, with total restructuring costs estimated at approximately $1.8 million. The company recorded $0.4 million of restructuring charges and $0.3 million of disposal losses during the first half.
Important facts for investors to verify
- Whether pricing continues to offset raw-material, labor and other cost inflation, and whether the improved gross margin is sustained.
- Acquisition integration, final purchase accounting and Mohawk’s estimated additional consideration; acquired sales contributed materially to reported growth.
- Working-capital and cash-flow trends, especially receivables and inventory, alongside planned capital expenditures and dividends.
- Floating-rate exposure, future borrowing costs, covenant headroom and repayment or refinancing needs as senior notes mature in 2024 and 2026.
- Changes in environmental-reserve estimates and developments in the New Idria remediation process and pending patent litigation.