Myers Industries, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; selected quarterly results are included. Myers manufactures reusable plastic material-handling products and distributes tire-service tools, equipment and supplies through its Material Handling and Distribution segments.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $510.4 million | $515.7 million |
| Gross profit / margin | $172.0 million / 33.7% | $171.3 million / 33.2% |
| Operating income | $53.6 million | $37.3 million |
| Income from continuing operations | $36.8 million | $24.2 million |
| Net income / diluted EPS | $36.8 million / $1.02 | $24.3 million / $0.68 |
| Operating cash flow, continuing operations | $46.5 million | $47.0 million |
| Capital expenditures | $13.4 million | $10.3 million |
| Cash dividends paid | $19.4 million | $19.3 million |
Gross margin improved mainly because lower commodity costs offset lower volume. Operating income included an $11.9 million gain from the release of a lease guarantee and sale of fully reserved notes related to the former Lawn and Garden business; therefore, reported earnings growth was not solely operating-driven.
At year-end, cash was $28.3 million and face-value debt was $78.0 million. The company had $194.2 million available under its $200 million revolving facility, after letters of credit. Current assets were $183.7 million and current liabilities $142.2 million. The $40 million note due January 2021 was repaid using cash and revolving-facility borrowings. Debt covenants were met; actual interest coverage was 15.38x and leverage was 1.11x, against required levels of at least 3.00x and no more than 3.25x, respectively.
Changes versus the prior period
- Sales declined 1% year over year. Material Handling sales fell 4% to $343.9 million; Distribution sales rose 5% to $166.5 million.
- Lower volume, pricing and currency reduced sales by a combined amount, partly offset by acquired sales: $11.8 million from Elkhart Plastics and $12.9 million from Tuffy.
- FY2020 net income benefited from the $11.9 million gain noted above. FY2019 included a $3.5 million charge for replacement of defective boxes; FY2018 had substantial charges related to the former Lawn and Garden business.
- Operating cash flow was broadly flat, while investing cash outflow increased to $75.6 million, primarily reflecting $62.6 million paid for Elkhart Plastics. Year-end cash fell from $75.5 million to $28.3 million.
- Elkhart Plastics was acquired in November 2020 for approximately $64.2 million and added to Material Handling. It contributed $11.8 million of reported 2020 sales.
In Q4 2020, sales were $137.5 million versus $116.8 million in Q4 2019, while net income was $3.0 million versus $5.7 million. Quarterly operating income was $4.9 million versus $8.8 million.
Outlook, commentary and risks
- Management said the company had sufficient liquidity and borrowing capacity to navigate COVID-19 uncertainty. Most operations were deemed essential and continued operating, though some facilities temporarily closed in March and April 2020. The filing provides no formal numerical earnings or sales guidance.
- In Q1 2021, Myers announced an 8% price increase, primarily affecting Material Handling, in response to rapidly rising resin costs. The timing and extent of cost recovery are uncertain.
- The Ameri-Kart facility consolidation was expected to be substantially complete in 2021, with approximately $1.5 million of annualized benefits after completion. The new Bristol facility lease is for 15 years; expected initial annual base rent is approximately $0.8 million.
- COVID-19 demand and operating disruption, resin and rubber costs or supply interruptions, competition, acquisition integration, manufacturing interruptions, cybersecurity, and environmental regulation are identified risks.
- Environmental reserves totaled $7.2 million for the New Idria Mine and $1.5 million for New Almaden at year-end. New Idria remediation costs beyond the investigation/feasibility-study work could not be reasonably estimated and were not accrued; possible insurance recovery was not recognized. An EPA work-plan decision was anticipated in 2021.
- A patent-infringement case involving Scepter remained unresolved, with no reserve recorded. The 2017 federal tax return was under IRS audit, including review of a worthless-stock deduction related to the Brazil divestiture.
- The financial statement audit opinion was unqualified. Management and the auditor reported effective internal controls, but their assessment excluded Elkhart Plastics, representing approximately 23% of year-end assets and 2% of annual sales.
Important facts for investors to verify
- How much of 2020 earnings growth reflects recurring segment performance versus the $11.9 million one-time gain?
- Whether resin-price increases offset higher input costs without materially reducing volume or margins.
- Elkhart Plastics’ post-acquisition performance, final purchase accounting and integration progress.
- The eventual scope, cost, timing and insurance recovery for New Idria environmental work, plus developments at New Almaden.
- Liquidity and borrowing capacity after repayment of the $40 million note, including the facility’s March 2022 maturity and covenant headroom.
- Q4 earnings softness and the extent to which subsequent demand, COVID-19 effects and working-capital needs affect cash generation.