Myers Industries, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Myers operates in Material Handling and Distribution; results from the former Brazil business are presented as discontinued operations. Unless otherwise noted, amounts below are in millions.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $132.3 | $125.5 | $372.9 | $398.9 |
| Gross profit | $47.1 | $39.6 | $132.1 | $132.1 |
| Gross margin | 35.6% | 31.5% | 35.4% | 33.1% |
| Operating income | $13.1 | $8.1 | $48.7 | $28.5 |
| Net income | $8.7 | $5.2 | $33.8 | $18.6 |
| Diluted earnings per share | $0.24 | $0.15 | $0.94 | $0.52 |
- Q3 revenue: Increased 5%, with higher volume and $2.9 million of incremental Tuffy acquisition sales partly offset by lower pricing. Material Handling sales rose 3%; Distribution sales rose 10%.
- Nine-month revenue: Fell 7%. Material Handling declined 11%, primarily from lower vehicle, food-and-beverage, and industrial demand. Distribution rose 5%, reflecting Tuffy sales, partly offset by lower volume.
- Profitability: Management attributed higher gross margins mainly to lower commodity raw-material costs and, in Q3, higher volume. Q3 2019 cost of sales included a $3.5 million product-replacement charge.
- Unusual earnings item: Nine-month 2020 operating income and net income include an $11.9 million pretax gain from selling fully reserved notes receivable and obtaining release from an HC Companies lease guarantee. The transaction also generated $1.2 million cash proceeds.
- Costs and interest: Q3 SG&A rose 8% to $33.9 million, including $2.4 million of executive severance and related costs. Nine-month SG&A fell 7% to $95.4 million. Net interest expense was $1.2 million for Q3 and $3.5 million for nine months.
Cash flow, liquidity and debt
- Cash at September 30 was $83.7 million, up from $75.5 million at year-end 2019. Nine-month operating cash flow from continuing operations was $31.3 million, compared with $39.5 million in 2019; management cited lower first-half sales and working-capital increases, including receivables and inventory.
- Capital expenditures were $9.0 million for the nine months; full-year 2020 capital expenditures were expected to be approximately $15 million. Dividends paid were $14.6 million.
- Debt had $78.0 million face value outstanding ($77.5 million net of deferred financing costs); $40 million of notes mature January 15, 2021. The balance sheet classifies $40.0 million as current. The $200 million revolving facility had no borrowings and $194.2 million available, net of letters of credit.
- The company reported compliance with debt covenants. Actual interest coverage was 14.50 against a 3.00 minimum; leverage was 1.18 against a 3.25 maximum. Management said cash, operating cash flow, and available credit should support expected needs, including debt service, dividends, capital spending, and selective acquisitions.
Outlook, risks and contingencies
- No earnings or revenue guidance was provided. The Ameri-Kart facility consolidation was expected to be substantially complete in Q1 2021, with approximately $1.5 million of expected annualized benefits upon completion. A new 15-year facility lease is expected to commence then; initial annual base rent is approximately $0.8 million.
- Management reported improving Q3 demand in most end markets, but noted pandemic-related uncertainty. Some facilities had temporary closures in March and April; the filing cautions that COVID-19 could affect demand, operations, supply chains, and liquidity. Consumer-market demand benefited from hurricane and wildfire activity that management did not expect to recur.
- Environmental reserves included $6.7 million for the New Idria mine and $1.5 million for the New Almaden mine. New Idria remediation costs remain uncertain; the final remediation strategy had not been determined, and potential insurance recovery was not recognized.
- A patent-infringement and related claims lawsuit involving Scepter remained unresolved; no reserve was recorded because the outcome and potential impact could not be determined. Approximately $0.5 million remained accrued for replacement of defective boxes.
- Other identified risks include raw-material cost increases, customer demand and pricing pressures, facility disruptions, foreign-currency exposure, litigation, and the effects of COVID-19. The company had no floating-rate borrowings or foreign-currency contracts outstanding at quarter-end.
Important facts for investors to verify
- How much of nine-month earnings growth reflects the $11.9 million gain rather than ongoing operations.
- Progress and costs for the Ameri-Kart consolidation, including the timing and economics of the new lease and expected savings.
- Refinancing or repayment plans for the $40 million notes due January 2021.
- Whether Q3 demand and margin improvement persist, particularly given nonrecurring weather-driven consumer demand and lower year-to-date Material Handling sales.
- Potential changes to environmental liabilities, remediation estimates, or insurance recovery, and the status of the Scepter litigation.