Myers Industries, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. All dollar amounts below are in millions unless stated otherwise. Myers operates Material Handling and Distribution businesses.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net sales | $118.4 | $134.3 | $240.6 | $273.4 |
| Gross profit / margin | $42.6 / 36.0% | $46.9 / 35.0% | $85.1 / 35.3% | $92.5 / 33.8% |
| Operating income | $12.3 | $10.2 | $35.6 | $20.4 |
| Net income | $8.4 | $6.6 | $25.1 | $13.4 |
| Diluted earnings per share | $0.23 | $0.18 | $0.70 | $0.37 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $11.8 | $16.2 from continuing operations |
- Q2 SG&A was $30.3 million, down 18%; 25.6% of sales versus 27.4% a year earlier. Net interest expense was $1.2 million versus $1.0 million.
- At June 30, cash was $72.3 million. Face-value debt was $78.0 million, including $40.0 million due January 2021; carrying value was $77.4 million. The company had $194.2 million available under its $200 million revolving facility, with no revolver borrowings outstanding, and reported compliance with debt covenants.
- Current assets were $198.9 million and current liabilities were $120.4 million. The company paid $9.7 million in dividends during the first half and reported capital expenditures of $5.6 million.
Changes versus prior year
- Q2 sales fell 12%, primarily from lower Material Handling volume; Distribution sales were down 2%. For the first half, sales fell 12%; Material Handling declined 17%, while Distribution rose 1%, including Tuffy acquisition sales.
- Management attributed lower sales chiefly to reduced volume in vehicle, food and beverage, and industrial markets, partly offset by stronger consumer-market demand. Q2 demand improved toward quarter-end after a weaker start.
- Gross margin increased in both reported periods, primarily because lower commodity raw-material costs partly offset volume pressure. Lower SG&A also supported operating income.
- First-half 2020 operating income includes an $11.9 million pre-tax gain from resolving the HC Companies note-receivable and lease-guarantee arrangements. The prior-year first half included a $4.0 million environmental charge, $0.9 million of restructuring costs, and a $0.9 million impairment charge. The 2019 first-half net income also included $0.1 million from discontinued operations.
- First-half operating cash flow from continuing operations declined to $11.8 million from $16.2 million, with management citing lower sales volume. Working capital uses included $9.7 million for receivables and $5.5 million for inventory.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management expected approximately $15 million of 2020 capital expenditures and about $1.5 million in annualized benefits after completion of the Ameri-Kart facility consolidation, expected substantially in Q1 2021.
- COVID-19 created material uncertainty around demand, operations, and liquidity. Most sites remained open as essential businesses, but two Ameri-Kart facilities and the Central American Distribution business were temporarily closed in part of March and April. The company also cited possible supply-chain disruption and changing regulations.
- The HC transaction exchanged $1.2 million for fully reserved notes and related accrued interest and released the company from a lease guarantee; the release accounted for most of the $11.9 million gain.
- Environmental reserves included $6.5 million for the New Idria mine and $1.5 million for New Almaden. New Idria remediation strategy and costs remain uncertain; potential insurance recoveries were not recognized. The company also disclosed patent litigation involving Scepter, with no reserve recorded and an uncertain outcome.
- A product defect replacement obligation had an estimated total cost range of $3.5–$4.0 million; $0.7 million remained accrued at June 30, 2020.
- The company stated that it expected cash, operating cash flow, and revolver availability to cover business needs, including dividends, debt service, capital expenditures, working capital, and selective acquisitions. This expectation is subject to COVID-19 and other risks.
Investor facts to verify
- Whether demand recovered after quarter-end, especially in Material Handling’s vehicle, food and beverage, and industrial markets.
- Ability to refinance or repay the $40 million note due January 2021 and maintain covenant compliance.
- Underlying earnings and cash generation excluding the $11.9 million HC-related gain.
- Final New Idria investigation and remediation costs, timing of New Almaden work, and any insurance recoveries.
- Ameri-Kart consolidation timing, lease commitments, and realization of expected savings.