Myers Industries, Inc. — FY2011 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2011; it also reports quarterly results, including the fourth quarter. Myers Industries manufactures plastic and rubber products and distributes tire-service equipment and supplies through four segments: Material Handling, Lawn and Garden, Distribution, and Engineered Products. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net sales | $755.7 | $737.6 |
| Gross profit / margin | $198.3 / 26.2% | $164.5 / 22.3% |
| Operating income (loss) | $38.4 | $(47.6) |
| Net income (loss) from continuing operations | $24.5 | $(42.8) |
| Continuing-operations diluted EPS | $0.71 | $(1.21) |
| Cash from operating activities | $64.2 | $45.6 |
| Capital expenditures | $21.9 | $20.5 |
| Total debt at year-end | $74.0 | $83.8 |
- FY2011 sales grew 2%. Pricing and favorable product/service mix added $42.2 million, and currency translation added $4.4 million; lower volume reduced sales by $28.5 million.
- Segment sales: Material Handling $261.8 million (+2%); Lawn and Garden $217.1 million (-3%); Distribution $183.7 million (+5%); Engineered Products $116.2 million (+11%), before intersegment eliminations.
- SG&A increased 13% to $158.6 million, or 21.0% of sales versus 19.0%. Net interest expense declined 35% to $4.7 million as borrowing levels and average rates fell.
- Year-end current assets were $218.5 million and current liabilities $110.7 million, with working capital of $107.8 million; cash was $6.8 million. The $180 million credit agreement had $135.5 million available, net of letters of credit. Debt covenants were met: interest coverage 8.76 versus a 2.25 minimum; leverage 1.07 versus a 3.25 maximum.
- Operating cash flow less capital expenditures was approximately $42.2 million, calculated from reported figures. The company repurchased 2 million shares for $20.9 million and paid $9.5 million in dividends during 2011.
- Fourth quarter: sales were $192.5 million, gross profit $57.5 million, continuing-operations income $5.9 million, and diluted EPS $0.18. In Q4 2010, sales were $188.2 million and gross profit $44.2 million, while continuing-operations results were a $50.5 million loss, largely due to the $72.0 million Lawn and Garden goodwill impairment.
Material changes and management commentary
- Gross margin improved with pricing, product mix, and productivity initiatives despite higher resin costs; average polypropylene and high-density polyethylene prices rose approximately 16% and 11%, respectively, year over year.
- Material Handling benefited from stronger agricultural, industrial, manufacturing, and automotive demand, partly offset by a $37.6 million reduction in lower-margin custom pallet sales. Lawn and Garden sales were hurt by poor growing-season weather and lower volumes. Engineered Products growth reflected demand in recreational vehicle, marine, and contract-manufacturing markets.
- FY2010 included a $72.0 million Lawn and Garden goodwill impairment and a $3.8 million claims-settlement gain; these unusual items materially affect year-over-year comparisons. FY2011 recorded $1.2 million of impairment charges and restructuring-related costs, including $2.7 million in SG&A and $0.7 million in cost of sales. The filing also reports a $1.9 million New Idria environmental investigation accrual.
- Management stated that operating cash flow and available credit should meet expected business needs, including capital expenditures, dividends, working capital, and debt service, into the foreseeable future. No quantified FY2012 earnings or sales guidance is provided in the supplied filing text.
Risks, contingencies, and other items
- Raw-material price volatility and supply interruptions could pressure margins; the company had no commodity derivatives. Weather and seasonal demand affect Lawn and Garden, while competition, economic conditions, production disruptions, and international exposure also present risks.
- The EPA added the New Idria Mercury Mine to the Superfund National Priorities List in 2011. The company accrued $1.9 million for investigation and feasibility work, but further remediation estimates and potential EPA cost recovery are unknown. A separate Guadalupe River Watershed matter is reasonably possible, but the filing says the obligation cannot currently be estimated.
- Other ordinary-course litigation was not expected by management to have a material adverse effect; an employee-fatality-related proceeding could create uncertain exposure. Environmental, product-liability, insurance, and debt-covenant risks are discussed in the filing.
- The 2011 financial statements and internal control over financial reporting received unqualified audit opinions; management and the auditor reported effective internal controls as of year-end.
Important facts for investors to verify
- Whether improved gross margins and price increases can be sustained against resin costs and higher SG&A.
- How much Lawn and Garden demand recovers after the weather-affected 2011 season.
- The eventual scope, cost allocation, and insurance coverage for New Idria and any Guadalupe Watershed remediation.
- Debt maturities, borrowing availability, covenant headroom, and the continued funding of capital spending, dividends, and share repurchases.
- Whether the reported earnings recovery is representative of ongoing operations after considering the 2010 impairment and settlement gain and 2011 restructuring and environmental charges.