Myers Industries, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Financial statements are unaudited. Dollar amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net sales | $181.1 | $177.3 | $379.9 | $372.8 |
| Gross profit / margin | $47.4 / 26.2% | $44.5 / 25.1% | $105.4 / 27.7% | $98.6 / 26.5% |
| Operating income | $10.0 | $8.7 | $27.1 | $21.0 |
| Net income | $5.7 | $4.7 | $15.6 | $11.4 |
| Diluted EPS | $0.17 | $0.13 | $0.46 | $0.32 |
Q2 operating income increased 15% and net income rose 21% year over year. For the first half, operating income grew about 29% and net income about 38%. Management attributed stronger margins primarily to operational cost reductions, pricing, product mix, and raw-material purchasing savings. Q2 SG&A rose 4% to $37.4 million; first-half SG&A rose 1% to $78.3 million.
Segments and period comparisons
- Q2: Engineered Products sales increased 38% to $38.6 million, while Material Handling sales fell 10% to $60.3 million. Lawn and Garden rose 2% to $42.5 million; Distribution declined 4% to $44.2 million.
- First half: Engineered Products sales rose 36% to $75.9 million. Material Handling fell 5% to $125.5 million, Lawn and Garden fell 7% to $101.7 million, and Distribution fell 1% to $86.9 million.
- Q2 consolidated sales growth reflected improved pricing and volume, partly offset by unfavorable foreign-currency translation. Management said delayed Material Handling customer orders shifted demand from Q2 to the second half; Engineered Products growth reflected demand in automotive, recreational vehicle, marine, and custom markets.
- First-half income before taxes was $25.0 million versus $18.7 million. Lawn and Garden reported a first-half pretax loss of $0.7 million versus income of $2.3 million a year earlier.
Cash flow, debt, and liquidity
- First-half operating cash flow was $7.9 million, versus $8.8 million. Working-capital cash use included a $12.3 million inventory build and $19.0 million use from accounts payable and accrued expenses; receivables provided $10.4 million.
- Capital expenditures were $8.4 million. Cash at June 30 was $35.6 million, compared with $6.8 million at December 31, 2011.
- Total debt was approximately $102.1 million at June 30, up from $74.0 million at year-end. The company had $107.8 million available under its $180 million credit agreement. Management said additional borrowing near quarter-end funded the subsequent Novel acquisition.
- The company reported compliance with debt covenants. Actual interest coverage was 10.36 versus a 2.25 minimum; leverage was 1.36 versus a 3.25 maximum. A 1 percentage-point rise in market rates was estimated to increase annual interest expense by about $0.7 million.
- First-half dividends paid were $5.0 million; dividends declared were $0.16 per share. Management believes operating cash flow and available credit will meet foreseeable business needs, including investment, dividends, working capital, and debt service.
Outlook, notable events, and risks
- No formal earnings or sales guidance is provided. Management expected full-year capital expenditures of approximately $30 million.
- Effective July 1, 2012, the company acquired Brazil-based Plasticos Novel do Nordeste S.A. for $27.5 million, including assumed debt and liabilities and subject to post-closing adjustments. Novel was projected to generate approximately $38 million in 2012 net sales and will be included in Material Handling. Purchase accounting was still being assessed.
- Restructuring net expenses were $0.6 million for the first half. Approximately $5.7 million of property and equipment remained classified as held for sale; the company was pursuing sales of the facilities.
- Key exposures include plastic-resin cost increases, floating interest rates, foreign exchange movements, and customer-demand variability. The company had no foreign-currency contracts in place at June 30 and no derivatives hedging interest-rate or commodity exposure.
- The company disclosed ordinary-course legal proceedings, including a fatal workplace incident lawsuit in which it is an additional defendant. Management could not determine whether that matter would create exposure, but believed insurance was adequate and that the overall legal matters would not materially adversely affect the company. Unfavorable rulings could nevertheless have a material impact.
Important facts for investors to verify
- Whether delayed Material Handling orders converted to sales in the second half, and whether segment demand trends persisted.
- Novel’s final purchase accounting, actual results, integration progress, and effect on debt and liquidity.
- Whether the anticipated $30 million capital-spending plan and dividend remain supportable by cash generation.
- Movement in resin costs, pricing, margins, floating-rate debt costs, and foreign-currency exposure.
- Developments in the workplace lawsuit and the sale of the held-for-sale facilities.