Myers Industries, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Myers Industries designs, manufactures and distributes products through its Material Handling and Distribution segments. This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the same periods of 2022. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $197.8 | $228.1 | $622.0 | $686.7 |
| Gross profit | $62.4 | $71.6 | $201.9 | $218.3 |
| Gross margin | 31.5% | 31.4% | 32.5% | 31.8% |
| Operating income | $18.7 | $19.9 | $53.8 | $66.9 |
| Net income | $12.7 | $13.7 | $36.3 | $46.8 |
| Diluted EPS | $0.34 | $0.37 | $0.98 | $1.28 |
| Net interest expense | $1.5 | $1.7 | $5.0 | $4.1 |
- Cash flow: Nine-month operating cash flow was $70.8 million, versus $50.8 million in 2022, primarily reflecting lower working capital use, including a favorable accounts-receivable movement. Capital expenditures were $19.3 million; investing cash use was $19.3 million. Financing cash use was $49.8 million, including $34.0 million of net credit-facility repayments and $15.3 million of dividends paid.
- Liquidity and debt: Cash was $24.8 million at September 30, 2023. The company reported $222.3 million available under its $250 million revolving facility and $5.7 million of letters of credit. Gross borrowings were $60.0 million ($22.0 million revolver and $38.0 million senior notes); $26.0 million of notes mature January 2024 and $12.0 million January 2026. Finance-lease liabilities were $9.3 million. The company was covenant-compliant; actual interest coverage was 15.72 against a 3.00 minimum, and leverage was 0.71 against a 3.25 maximum.
- Other balance-sheet items: Total assets were $531.1 million and shareholders’ equity $282.2 million. Inventory was $96.2 million, up from $93.4 million at year-end 2022.
Changes versus prior periods
- Q3 sales declined 13.3%; nine-month sales declined 9.4%. Management attributed the declines mainly to lower volume and mix, with lower pricing and unfavorable currency also contributing.
- Material Handling sales fell 14.9% in Q3 and 15.2% year to date. Distribution sales fell 9.8% in Q3, but increased 6.8% year to date, including $23.1 million of incremental Mohawk acquisition sales.
- Management cited elevated prior-year consumer demand for outdoor-focused products as a contributor to the year-to-date volume decline. Lower material costs supported gross-margin expansion, partly offset by labor and productivity costs.
- SG&A decreased 15.6% in Q3, primarily due to lower incentive compensation and facility and variable selling expenses. Year-to-date SG&A decreased 2.6%, although SG&A as a share of sales increased to 23.8% from 22.1%.
- Year-to-date interest expense rose 22.0% despite lower average borrowings, as the weighted-average borrowing rate increased to 6.74% from 4.55%. Q3 weighted-average borrowing rate was 7.09%, versus 5.50%.
Outlook, risks and unusual items
- No specific earnings or sales guidance is provided. Management expects full-year 2023 capital expenditures of approximately $25–$30 million and believes cash, operating cash flow and credit availability will cover expected business needs, dividends, debt service and selective acquisitions.
- Management cited inflation, interest rates, commodity-cost volatility, supply-chain disruption, labor availability, customer demand, pricing competition and geopolitical and economic uncertainty. It noted that plastic resin and other input-cost increases could materially affect results; no commodity hedges were in place. A 1% increase in market rates was estimated to raise annual variable interest expense by about $0.2 million.
- Environmental matters: The New Idria Mine reserve was $11.2 million, with a related probable insurance receivable of $6.2 million. The company has not accrued potential remediation costs because it cannot estimate a reasonably possible range. For New Almaden, the reserve was $4.4 million; the company disputes responsibility for sharing the full cost of a project estimated by the County at approximately $9.0 million.
- Legal matters: The company reported a favorable jury verdict and conclusion of the No Spill patent case; it is pursuing additional insurance recovery for defense costs. A separate fuel-container product-injury case remains pending, with outcome and potential damages not meaningfully assessable. On October 18, 2023, Tank Holding Corp. filed a patent-infringement complaint concerning one product; the company said it believes it has strong defenses, but the matter was at an early stage.
- Restructuring included $1.5 million of severance charges from other initiatives in the first nine months, plus $0.7 million related to the Ameri-Kart plan. Remaining Ameri-Kart consolidation costs were estimated at approximately $2.5 million through 2026.
Important facts for investors to verify
- Whether lower volume and mix stabilize, particularly in Material Handling, and whether Distribution pricing offsets demand weakness.
- Progress on gross margins, labor and productivity costs, and the effect of lower incentive compensation on SG&A comparisons.
- Refinancing or repayment plans for the $26.0 million of notes due in January 2024, alongside floating-rate exposure and continued covenant compliance.
- Updates to environmental reserves, probable insurance recoveries, and potential unaccrued New Idria remediation costs and New Almaden cost-sharing exposure.
- Developments in pending litigation and insurance recovery, as well as delivery of the stated $25–$30 million 2023 capital-expenditure plan.