Myers Industries, Inc. — Q1 2024 Form 10-Q
Reporting period: Quarter ended March 31, 2024; unaudited consolidated results. Dollars are in millions except per-share data. The quarter includes Signature Systems from its February 8, 2024 acquisition.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $207.1 | $215.7 | Down 4.0% |
| Gross profit / margin | $64.3 / 31.0% | $71.1 / 32.9% | Profit down 9.6% |
| Operating income | $10.9 | $19.0 | Down 42.6% |
| Net income | $3.5 | $13.0 | Down 73.0% |
| Diluted EPS | $0.09 | $0.35 | Down $0.26 |
| Operating cash flow | $20.3 | $25.8 | Down $5.5 |
| Capital expenditures | $5.7 | $9.1 | Down $3.4 |
Net interest expense rose to $6.1 million from $1.6 million, reflecting higher average borrowings and a higher weighted-average borrowing rate (8.93% versus 6.43%). Effective tax rate was 27.0%, compared with 25.0%.
At March 31, cash was $32.7 million. Debt was $409.0 million before $8.4 million of unamortized financing costs; the company reported total debt of $409.7 million including finance leases. It had $235.4 million available under its revolving credit facility. Current assets were $283.7 million and current liabilities $162.2 million.
Business performance and material changes
- Material Handling sales were $152.2 million, down 0.2%; Distribution sales were $54.9 million, down 13.1%. Distribution weakness was primarily lower volume/mix.
- Management attributed the consolidated sales decline to lower volume/mix ($24.5 million) and lower pricing ($3.4 million), partly offset by $19.3 million of Signature sales. Signature generated $2.9 million of operating income during its included period.
- Gross profit was pressured by weaker volume/mix and pricing, $3.1 million of acquisition-related inventory step-up amortization, and higher labor and productivity costs; lower material costs and Signature partly offset these factors.
- SG&A increased 2.6% to $53.5 million. Signature added expenses, including acquisition costs and intangible amortization; lower incentive compensation, legal/professional costs and salaries partly offset the increase.
- Signature was acquired for an expected net consideration of approximately $348.2 million. Preliminary purchase accounting includes $215.1 million of goodwill and $127.0 million of intangible assets; valuations and working-capital adjustments remain subject to finalization.
Cash, debt, outlook and risks
- Investing cash use was $354.5 million, principally the $348.9 million cash purchase price for Signature. Financing cash provided was $336.9 million, including a new $400 million five-year Term Loan A; the company also repaid $38 million of senior notes and paid $9.2 million in financing fees.
- Term Loan A amortization begins June 30, 2024: eight quarterly installments of $5 million, followed by quarterly installments of $10 million, with the remaining balance due at maturity. The revolving facility limit remains $250 million. The facility is secured by substantially all assets.
- The company reported compliance with debt covenants. At quarter-end, actual interest coverage was 13.67 versus a 3.00 minimum, and net leverage was 2.62 versus a 4.00 maximum. The leverage ceiling is scheduled to fall to 3.25 after the specified post-acquisition holiday period.
- Management expects 2024 capital expenditures of approximately $35–$40 million and believes cash, operating cash flow and available borrowing capacity will fund expected needs, including working capital, dividends and debt service. The filing provides no specific earnings or revenue guidance.
- On May 2, 2024, the company entered a swap covering an initial $200 million of floating-rate debt, fixing the reference rate at 4.606% plus the applicable margin through January 2029, subject to scheduled reductions in notional amount.
- Risks cited include economic and customer-demand uncertainty, inflation and commodity costs (particularly plastic resin), interest rates, labor availability, supply-chain disruption, operational issues, and execution or benefit realization from growth initiatives and acquisitions. A 1% rate increase at quarter-end debt levels was estimated to increase annual variable interest expense by about $4.1 million before considering the subsequent swap.
- Environmental exposures include a $12.3 million New Idria Mine reserve, partly offset by a $7.0 million probable insurance-recovery receivable; remediation costs are not accrued because they cannot yet be reasonably estimated. The New Almaden reserve was $4.4 million, and the company is disputing its share of project cost increases. Management says legal matters are not expected to have a material adverse effect, but notes outcomes remain uncertain.
- Remaining Ameri-Kart consolidation costs are estimated at approximately $2.0 million through 2026. The filing cautions that interim results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Signature’s purchase accounting, integration progress, realized synergies and contribution after the acquisition-related charges.
- Whether demand and volume/mix stabilize, especially in Distribution, and whether gross margins recover after the inventory step-up and labor/productivity pressures.
- Debt reduction, interest costs, covenant headroom and the effectiveness and terms of the May 2024 interest-rate swap.
- Cash conversion, working-capital requirements and execution of the $35–$40 million 2024 capital-expenditure plan.
- Updates to environmental reserves, insurance recoveries and the unresolved New Almaden remediation-cost allocation.