Business context and reporting period
Myers Industries, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2022, compared with the quarter ended March 31, 2021. The company operates Material Handling, which manufactures reusable plastic containers and other molded products, and Distribution, which sells and manufactures tire-service equipment, tools, and supplies. Unless otherwise noted, financial figures below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $225.5 | $174.4 |
| Gross profit / margin | $71.9 / 31.9% | $50.4 / 28.9% |
| Operating income | $24.4 | $10.9 |
| Net income | $17.3 | $7.3 |
| Diluted earnings per share | $0.47 | $0.20 |
| Operating cash flow | $7.3 | $6.6 |
| Capital expenditures | $5.1 | $5.2 |
Sales rose 29.3%. Material Handling sales increased 36.0% to $176.6 million and Distribution sales increased 9.7% to $48.9 million. Material Handling operating income was $31.2 million versus $16.9 million; Distribution operating income was $3.3 million versus $1.4 million. Corporate costs increased to $10.1 million from $7.5 million.
At March 31, 2022, cash was $17.6 million, current assets $254.8 million, and current liabilities $149.0 million. Long-term debt, net of financing costs, was $92.5 million; total debt including finance leases was reported by management as $102.3 million. The company had $191.8 million available under its $250 million revolving facility, after borrowings and letters of credit. It reported compliance with debt covenants; actual interest coverage was 21.04 versus a 3.00 minimum, and leverage was 1.16 versus a 3.25 maximum.
Quarter-end cash decreased $0.1 million. Working-capital movements included a $31.9 million cash use from receivables and a $6.0 million use from inventory, partly offset by a $20.1 million source from accounts payable and accrued expenses. The weighted-average borrowing rate was 4.12%, versus 5.33% a year earlier; net interest expense rose 15.3% to $1.1 million as average borrowings increased.
Material changes versus prior period
- Sales growth reflected $35.3 million of higher pricing, $4.9 million of higher volume/mix, and $10.9 million of incremental Trilogy acquisition sales. Management said pricing more than offset higher raw-material costs, improving the price-to-cost relationship.
- Gross margin expanded 3.0 percentage points. Higher raw-material and labor costs and unfavorable mix partially offset pricing, volume/mix, and Trilogy contributions.
- SG&A increased 21.3% to $48.0 million, mainly from higher salaries, benefits and incentive compensation, variable selling expenses, facility costs, and Trilogy-related costs. SG&A declined as a share of sales to 21.3% from 22.7%.
- Net income increased to $17.3 million from $7.3 million. Q1 2022 included a $0.5 million gain on disposal of fixed assets; Q1 2021 included $0.8 million of executive severance costs.
- Operating cash flow increased modestly despite higher net income, as increased receivables and inventory absorbed cash. Dividends paid were $4.9 million in each quarter.
Outlook, risks, contingencies and unusual items
Management expected 2022 capital expenditures of approximately $25 million to $28 million. It stated that cash, operating cash flow, and available credit were expected to cover business needs, including capital spending, dividends, working capital, debt service, and selective acquisitions. No other specific earnings or revenue guidance is provided in the filing.
Management highlighted inflation, volatile commodity and resin costs, supply-chain disruption, labor availability, geopolitical uncertainty related to Russia’s invasion of Ukraine, and continuing COVID-19 effects. The company does not hedge raw-material prices with derivatives; a 1 percentage point increase in market rates was estimated to raise annual variable interest expense by approximately $0.5 million. The company had no foreign-currency contracts in place at quarter-end.
The Ameri-Kart facility consolidation was expected to be substantially completed in 2022; total restructuring costs were estimated at approximately $1.8 million. The company recorded $0.4 million of restructuring charges in cost of sales and $0.3 million related to fixed-asset disposals in Q1 2022. Environmental reserves included $8.9 million for the New Idria mine and $1.5 million for New Almaden. New Idria costs remain uncertain; the EPA’s past-cost claim was revised to $2.0 million, and the company had not accrued for site remediation because it could not estimate the liability. In a patent-infringement case involving Scepter, trial was scheduled for March 2023; management said an unfavorable outcome was not considered probable and potential losses were not reasonably estimable.
Management cautioned that interim results are not necessarily indicative of full-year results. It reported effective disclosure controls as of March 31, 2022; its internal-control evaluation did not include Trilogy.
Important facts for investors to verify
- Whether pricing continues to offset resin, labor, and other cost inflation, and whether the improved gross margin is sustainable.
- Receivables, inventory, and payable trends, given the substantial working-capital cash use in Q1.
- Debt, facility availability, floating-rate exposure, and covenant headroom as borrowings and interest rates change.
- Progress and final costs of the Ameri-Kart consolidation, and the timing and potential financial impact of environmental matters.
- Whether the announced $25 million–$28 million capital-expenditure outlook and management’s liquidity assessment remain current.