Q4 2020 Myers Industries Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Myers industries, 2024th quarter earnings Conference call at the time, all participants are in a listen only mode. After the speaker's presentation or the question and answer session to ask the question during the session when the spec star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to MS. Monica the knee. Please go ahead.
Thank you.
Good morning, and welcome to Myers Industries fourth quarter 2020 earnings call I'm, Monica Vinay, Vice President of Investor Relations and Treasurer at Myers industries.
Joining me today are Mike Mcgaugh, President and Chief Executive Officer Final Robinson, Executive Vice President Finance, and Dan <unk> interim Chief Financial Officer.
Earlier. This morning, we issued a news release outlining the financial results for the fourth quarter and full year 2020, if you've not yet received a copy of the release you can access it on our website at Www Myers industries Dot com.
Under the Investor Relations Pat Inc.
<unk> is also being webcast on our website and will be archived of along with the transcript of the call. Shortly after this event.
Before I turn the call over to Mike I would like to remind you that we may make some forward looking statements. During the course of this call. These.
These comments are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Such statements are based on management's current expectations and involve risks uncertainties and other factors, which may cause results to differ materially from those expressed or implied in these statements.
Further information concerning these risks uncertainties and other factors is set forth in the Companys periodic SEC filings and maybe found in the company's 10-K and 10-Q filings.
I'm now pleased to turn the call over to Mike Mcgaugh.
Good morning, Thank you for joining us.
I'd like to start the call by expressing my sincere appreciation to our entire Myers team for all of their efforts in 2020.
I'm, especially proud of how well they face the challenges that were presented throughout the year due to the due to the COVID-19 pandemic.
As a result of the resilience and hard work, we were able to continue to produce and deliver of central products to our customers.
We delivered strong bottom line results for the year, increasing adjusted earnings per share of 9% from 78.
The 85 sales.
Thank you Morris teammates for a job well done over the course of a challenging year.
Before we begin with a business update of what's welcomed bottle Robinson, who joined US as executive Vice President Finance and February who will assume the CFO role next week.
Total brings a proven track record of providing strong leadership and transformational environments, along with considerable experience in capital markets mergers and acquisitions and the Investor Relations.
I'll look forward of partnering with her as we continue to drive and execute our one Myers strategy.
I also want to say the Dan home for his leadership as interim CFO during the past six months.
You did a great job, helping us lay a strong foundation and we will continue to benefit from Dan's contributions has returned to his role as vice President and corporate controller.
Please turn to slide three.
Before I discuss our performance I would like to review with you our long term vision the strategic pillars that we have in place to drive the execution and the progress we've made against those pillars.
I introduced the strategy and vision in our October 2020 earnings call and we are successfully executing against it.
To review we are currently in price and one which consists of three elements self help organic growth and bolt on M&A.
Self help focuses on purchasing.
Pricing and SG&A optimization, and Youre going to hear about a number of strategic steps. We've recently implemented along these lines in our discussion today.
In terms of organic growth, we are strengthening our commercial capabilities, which includes going to market as one company one Myers.
Our third element bolt on M&A is primarily focused on growing our plastics businesses by acquiring companies that build out our three technology platforms within the material handling segment.
We will continue to focus on companies that manufactured durable sustainable and or reusable in products.
Once the foundation of our drivers of Horizon. One are in place we will move to horizon, two where we will execute larger enterprise level of acquisition.
Our long term vision culminates with horizon, three which is focused on growing the company globally.
Our long term vision is ambitious, but it's well grounded and focused on building out the technologies and markets that we know well.
Granted it's in the early innings, but we're making solid progress.
Please turn to slide four which outlines of the four pillars that will drive the execution of our strategy, which is to transform our material handling segment into a high growth.
Customer centric innovator of engineered plastics solution, while we also continue to optimize and grow our distribution segment.
The first pillar focuses on the organic growth and addresses four critical areas sales and commercial excellence.
Innovation of new product development sustainability and e-commerce.
Our second pillar strategic M&A is geared around bolt on M&A opportunities that build out our plastics platforms.
You've already seen as the exit Q1 exciting acquisition in Elkhart plastics during the fourth quarter and our pipeline of opportunities continues to growth.
Of this effort.
As our integration playbook that will ensure a world class approach to acquisition integration.
The third pillar operational excellence continues the work we've done around continuous improvement while also building out our capabilities and what we call self help.
Doing of World class job in pricing and purchasing in an internal integration, which is the process of transforming into a single company R. One Myers approach.
As a part of this journey, we will also optimize SG&A.
Deploying our dollars into investments in sales engineering and manufacturing resources.
The final final pillar is the heart of our company our people were on our way to building of high performance culture.
<unk> focused on developing our employees and promoting from within.
Having a culture that's focused on employee safety.
Having an inclusive work environment and a culture of certain leadership.
We continue to build out our value focusing on integrity customer focused optimism all with the can do attitude or transformation opportunities through our culture are very exciting to me.
Please turn to slide five which speaks to our accomplishments so far.
And the organic growth pillar, we made significant progress in the second half of 2020 in particular in the area of sales and commercial excellence in E Commerce.
Our vice President of sales and commercial excellence, Jim Garney launched our new commercial structure, the standardized and strengthened our focus in sales marketing and product management. These elements will become critical parts of how we run our business.
<unk> launched the new sales training curriculum focused on growth.
This program will help our team improved their ability and cross selling and in growing the new one Myers approach.
One of the more meaningful parts of today's discussion is the new and more aggressive approach Myers industry is taking the E. Commerce. We believe the e-commerce will be of compelling channel for the future and we believe that Myers is well suited to capitalize on this trend.
Just last year in 2020 E Commerce sales grew more than 30% from our 2019 base.
We achieved this growth with what was largely a skunk works type project.
In order to turbocharge ecommerce at Myers, we've now stood up an independent focused organization to spearhead this channel the market.
E Commerce business will be led by Chad column was previously the president of our Acro Mills and GEMCO business units chat also help develop our original relationship with Amazon.
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Sales in the E Commerce channel for 2020 approached 5% of our total revenue.
Our goal is to double that by the end of 2023.
This is an ambitious target, but one that we believe is attainable.
As I noted earlier, we are well underway with our strategic M&A pillar, having strength in our portfolio with the acquisition of Elkhart plastics in November.
As a bolt on acquisition within rotational molding elkhart fits perfectly into our strategy and our developing culture through.
Through this combination we welcomed 460, new members to our team seven U S based manufacturing facilities and approximately $100 million of annualized revenues. The integration of Elkhart has gone smoothly and has been instrumental in the helped US further advance our integration playbook and our deal flow we.
We continue to build out of healthy funnel of potential acquisition.
Next I'd like to talk about R.
Our accomplishments in the third pillar operational excellence.
Last month, we announced the we've consolidated our material handling businesses into three distinct technology platforms injection molding rotational molding and blow molding.
We believe that we are unique in having strength in all three of these core molding technologies.
We've strengthened our injection molding capabilities by combining actual mills GEMCO in buckhorn into one club 15.
We've done the same and rotation of molding by merging <unk> with our recent acquisition Elkhart plastics.
Our third technology platform blow molding is currently comprised of our scepter business. This platform has tremendous opportunity for both organic and inorganic growth.
By combining acro mills, gamco, and buckhorn into a single platform and by combining <unk> card in Elkhart plastics into a single platform, we will be able to streamline our SG&A investments in overhead and redeploy these dollars and the sales engineering and manufacturing.
The larger units with more scale and reach these platforms will be more robust and we will be able to deliver more innovation and more value from our customers.
We are excited about this change in approach and believe that moves us forward in horizon, one enabling growth.
We're also managing cost.
One last piece I'll mention on pillar three is that we consolidated our purchasing function and created a single centralized purchasing team across the company.
This new approach allows us to aggregate our purchases become of easier company to do business with.
Longer term this should help us negotiate a more secure supply position and a more competitive cost position.
Moving to the last of our four pillars.
In order to execute and achieved breakthrough performance, we need to have a high performing culture.
One of our noteworthy achievement. This year is goal of alignment in order to ensure that we are collectively focused on achieving companywide success and fully executing our one of our strategy. We replace multiple legacy bonus plan with the single plan centered on one performance metric adjusted EBITDA. We believe this new.
One team approach will drive alignment unity and will help us deliver solid results of the future.
We also added talent in a number of leadership positions in our business. Most recently on Tuesday, We announced the addition of Paul Johnson to lead our distribution segment.
Ill brings 30 years of leadership in the automotive and auto aftermarket industry, which includes the recent role as the President of International break Industries, Inc.
The prior leadership positions with federal mogul and General Motors.
I believe Paul is the right leader to build grow and take this business forward.
I'd like to thank Chris and Paul for his hard work of successfully running the segment over the last three and a half years, Chris did an excellent job of leading the recent transformation of the distribution segment, which led the sales growth and improve profitability I'd like to wish Chris well as he pursues the next chapter of his career is returning back to its roots and <unk>.
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Finally, two dynamic leaders with significant transformation and growth experience joined our board in February is that bright and Jeff Kramer I've already had a chance to see bolt action this quarter and look forward to their ongoing counsel and leadership.
As you can see we've made a lot of good progress against the strategic initiatives, we still of a lot of work to do but I am pleased with what we've been able to accomplish in the short time.
Now turning to our fourth quarter performance, which starts on slide six.
Pleased with our results for the fourth quarter all things considered.
In spite of several manufacturing plants being impacted by the Covid surge in mid November and December we were still able to finish the quarter with sales up 8% on the organic basis, and 18%, including contributions from the Elkhart acquisition.
Top line organic growth was driven by continued momentum in the RV auto aftermarket and consumer end markets. We also saw demand improvement in our industrial and automotive markets, which gives me confidence that an economic recovery post pandemic is on the horizon.
During the quarter, we experienced rising raw material costs, and an unfavorable sales mix, which impacted our gross margin.
The raw material increases that began towards the end of 2020 of continued and accelerated into 2021 spin.
Specifically, we have seen significant increases in resin prices as a result of tightening supply in the U S. Gulf Coast in response, we announced an 8% of price increase across the broad portfolio of our products primarily in the material handling segment, which was effective March one 2021.
No we will continue to be vigilant about managing our pricing actions throughout the year to offset these unprecedented cost increases.
In addition of costs being a headwind the recent freeze on the Gulf Coast has had a significant impact on the short term supply of polyethylene and polypropylene.
Certain grades of resin continued to be tight.
And we are working closely with our suppliers from secure materials to ensure that we can continue to meet the needs of our valued customers.
As we enter 2021, we have solid top line momentum balanced with near term headwinds I just spoke to.
While the majority of our top line growth will come from the Aircard acquisition, both volume growth and pricing will also contribute.
We expect organic sales growth across most of our end markets as a result of the continuation of the demand trends in select end markets and our enhanced focus on our sales capability and ecommerce.
Total will provide more detail regarding our annual outlook, which includes both sales and EPS guidance.
Before I turn it over to her I'd like to reiterate that our what Myers strategy is working.
We are rapidly driving significant change in our organization and our capabilities to ensure that we execute our horizon one of our long term strategy and create and deliver long term shareholder value with that I'll turn it over the final.
Thank you, Mike and good morning, everyone. Let me begin by saying I'm delighted to be joining Myers at this inflection point in the company's history and I look forward to working with the team to drive and execute our long term strategy.
Turning to fourth quarter results on slide seven net sales were up $21 million, an increase of 18% and in <unk>.
Ganic basis, net sales increased 8%, excluding the impact of the Aircard acquisition increased sales in both the material handling and distribution segments contributed to growth.
Adjusted gross profit was up $1 2 million, while gross margin decreased from 33, 6% in the prior year to 29, 4% in the quarter.
<unk> was negatively impacted by an unfavorable price to cost relationship.
Spares and maintenance employee benefit costs, and an unfavorable product mix the.
Additionally, our current benefited profit that impacted gross margin unfavorably due to product mix sold.
As a reminder, we are targeting 4% to $6 million in annual cost synergies over the course of the upcoming two years.
Adjusted operating income decreased $700000. The increase in gross profit was more than offset by higher SG&A expenses, mostly due to the addition of Elkhart.
Adjusted EBITDA was $11 $3 million of decline of $1 6 million compared to the prior year adjusted.
Adjusted EBITDA margin was eight 2%.
Lastly, adjusted EPS was <unk> <unk> versus 12 <unk> in the prior year.
Turning now to slide eight for an overview of segment profit performance in the quarter.
Beginning with material handling net sales increased 26% or 10% on an organic basis.
Excluding elkhart sales in the food and beverage and vehicle markets were up double digits, driven by increased sales and feedback.
And in the RV Marine and automotive end markets.
<unk> sales in the consumer market were up high single digits due to feel container sales, while the industrial market was flat.
Material handling adjusted operating income was essentially flat at $9 1 million as.
As the impact of higher sales, but the offset by unfavorable price to cost relationship repairs and maintenance employee benefit costs and an unfavorable product mix.
In the distribution segment sales increased 4% driven by increased sales of equipment and consumables.
Actually offset by lower sales of tire repair products and advanced traffic marking tape.
Distributions adjusted operating income increased 13% to $3 $6 million.
Primarily as a result of higher sales.
Turning to slide nine.
Fourth quarter free cash flow was $10 7 million, an increase of $7 8 million, reflecting an increase in cash provided by operating activities, including the benefit of working capital net of deferred taxes.
During the quarter of the company utilized approximately $63 million in cash.
The Aircard acquisition.
Cash on hand at year end was $28 million.
Based on our trailing 12 month, adjusted EBITDA of $66 $4 million leverage was one two times.
Let me conclude my comments with additional color on our outlook for 2021.
Turning to slide 10, net sales are expected to increase by mid to high 20%, including an incremental 10 five months of sales related to the current acquisition.
And the expected impact of the March 1st price increase is.
As a reminder, <unk> annual net sales at the time of acquisition of approximately $100 million.
Continued momentum in RV and marine business, along with the rebound in India and in industrial and automotive related revenues are expected to drive growth.
As a reminder, feel container sales in 2020 were unusually strong due to one of the most active hurricane seasons on record.
Overall commodity costs are projected to be higher driven by increases in resin costs.
As Mike mentioned, the company announced an 8% price increase primarily across the material handling segment effective March <unk>.
Higher cost versus price realization is expected to compress margins in the first half of 2021, our teams continue to stay close to the changing market dynamics, including the need for additional pricing actions.
SG&A expenses are expected to approximate 24% of net sales benefiting from larger scale.
Below operating income we are projecting approximately $4 million of interest expense and an effective tax rate of 26%.
Our guidance reflects the weighted average share count of $36 5 million shares.
All of these assumptions into account, we expect adjusted EPS to be in the range of 90 to $1 five per share.
Other key assumptions impacting EBITDA and cash flow include depreciation and amortization expenses of approximately $23 million and capex of approximately $15 million.
Capex is expected to trend higher than past years, given a renewed focus on investing in our facilities.
In closing, let me reiterate that R. One Myers vision is gaining momentum as we continue to execute against our strategy and strengthen the building blocks to drive long term growth.
With that let me turn the call over to the operator for questions. Thank you.
If you'd like to ask the question at this time. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound team first question comes from Steve Barger with Keybanc capital markets.
Good morning, everybody.
Hey, good morning, good morning.
Just I'll start with the sales growth.
So knowledge.
I mentioned, the $100 million run rate. So if if that translates into a high $80 million in 2021. It seems like organic growth will be high single digit can you talk about that across the segments do you expect higher organic and material handling given the easier comps from the price increase.
Yes, absolutely so the hearing just the organic growth across both of the segments to your point the let.
Let me just maybe parse out that the top line growth. So as we think about the 2025 day to high 20% growth approximately 18% our therapy. If you annualize the elkhart sales would be due to the acquisition of leisure with the high single digit growth on.
The organic side of that approximately half of that would be organic volume and pricing related a little bit higher skewed toward volume on the higher end of the range and so that would translate to about material handling and growth in distribution non price related.
But you would expect higher higher organic material handling is that correct.
Correct.
Okay got it and just based on the guide the incremental margin for the year seems to be single digit. Despite what is obviously a nice revenue increase first off is that primarily because of price cost or why won't you get better pull through and then just the second part of that question. What do you think this model should generate for incremental margin over time.
Yes.
So Steve Martin I'll take the first part of the has sort of will take the second part of that.
It is it's price cost I mean, the demand the demand is there for the product.
We could see the economy recovering which is the good sign.
Across the board, whereas a number of markets that are experiencing good demand the.
Current ball is.
As the economy started the heel a lot of the rest of producers.
Either delayed turnarounds during.
During the pandemic and they had to catch up on that.
Or was the kind of yields you saw the snapback in your resin pricing in the fall.
Quarter, and that's continued into first quarter, which.
We could've, whether the at quite well the exception being is when the freeze hit and you had many of those producers went on force majeure and allocation. It just exacerbated it so it's for sure of the drop through of the lack of drop through is not where we would want it to be steady state, but it's all it's all price.
Paul It's all price cost.
The short term discrete issue down in the Texas Gulf Coast.
And the longer term incremental that you expect.
Some of what your model half of it.
So longer term I mean.
At this point in time, clearly we're focused on recovering those costs will continue to see volume contributed to margins that we haven't guided to a long term margin of at this point.
No I understand that but you have a pretty aggressive goal out there to get to a $1 billion in revenue by 2023.
A lot of that of course will come from acquisitions and that can skew the incrementals around but could you just give us a general idea of of.
As you you enter into this longer term organic versus M&A growth.
Growth paradigm, just how do you think this this model should flex.
Yes, Steve the.
Overall target on EBITDA of 15% on that $1 billion base.
<unk>.
What I'll also do look see if Dan wants to add any color on as you danced in the room as well.
Okay per month.
But in the short term there is theres going to be some uncertainty around the around the resin pricing.
How do we get to that $1 billion.
The timing of things.
When we achieve that 15% that's the long term.
Okay.
The 8% price increase or is that strictly based on the input costs or is there some value pricing component in there and I just asked because I know that.
The improving your pricing strategy has been a big focus of of the.
The early pillars.
Yes, yes, Steve good question.
I would say.
Our expectation is to cover the increase.
And if the opportunity presents itself to expand margins, obviously will we will capitalize on that.
My my belief is that we need to watch how the resin market unfolds polypropylene gone from 40 to $1 35.
We need to watch how the market unfolds and figure out do we need to go back in and.
The end move price.
Subsequent times, that's why I referenced in my comments, what we're watching it day to day by day to determine what additional pricing actions, we need to take and as we as we identify those deep we will move very swiftly.
Understood. Thanks. Thank.
Thank you.
Once again to ask the question press. The Star then the number of one on the telephone keep moving.
The comes from Tim <unk> with Baird.
Hey, everybody good morning, and welcome total thank you.
Thanks.
Good morning, So maybe just maybe.
Maybe just kind of starting starting back on on the pricing side of things just the increase that you put out into the marketplace could you just remind us how we should think of that in terms of just kind of the ultimate realization of the 8% and how that kind of phases into the model for the course of the year.
Yes.
So in general we're seeing.
Strong acceptance of the price increase Tim.
We're seeing strong acceptance of the price increase our customers are watching what's happening with on the resin side I understand it they're supportive.
So I'm very uncomfortable with the with the 8% and now clearly you get.
All of that everywhere no, but the directionally, it's a solid increase.
The timing and the phases.
It's the urgent.
We're moving fast on the on the on.
On the pricing increases.
Power prices effective March one.
The less contracts the prevented that.
But the prices moved up the key issue is what we don't know and why we are cautious and possibly even conservative is the golf supply situation is still unfolding.
Theres still producers who are trying to bring their units back up.
What does that do to the supply demand balance in the short term, we're still trying to sort that out.
But I'll turn it over to <unk> and <unk>.
By the way.
<unk> been here for a little over a month. The funnels then of a very quick studies so.
I am very very pleased and impressed with how the out and she is today our current situations for the final. Please go ahead. Thank you, Mike maybe to add a little more color to that commentary.
As I indicated as you think about our high single digit top line organic growth about half of that coming from from pricing that can kind of gives you a sense for what we would expect as of as of now in terms of top line growth in terms of of the cadence throughout the year clearly we announced that March 1st though there is sometimes the delay as you see that starting to flow through our orders.
We're going to recognize and so youre going to see I would say a larger impact as we go into Q2, three and four related to the pricing actions rather than what you may see coming through Q under just given obviously timing and flow through.
Okay. That's helpful and then on the on the M&A pipeline, Mike could you just talk a little bit about the opportunities in may.
Maybe how that's built over the last.
Six months since you've outlined that strategy and just kind of the internal capacity for incremental M&A at this point.
Yes.
Absolutely Tim similar to what we discussed in the past, we want differentiated products not commodity products.
Ideally products that of reusable durable and sustainable or we can put of high cost per cent of post consumer resin in there I think that aligns out with our direction from a sustainability standpoint.
I will say the Elkhart acquisitions been successful the targets that we've got line of sight into we believe solidly, but they're going to they're going to pan out.
Because that has gone well.
I think it's also improved a little bit of the buzz in the market.
The we're a.
We are indeed or will become the acquirer of choice and some of these businesses, particularly your founder owned businesses of what that means Tim is R.
Our inbound are inbound calls are increasing not only we're still doing a lot of outbound, but our inbound are increasing as well pipeline is really solid there is a lot of founder owned businesses that are quality businesses out there that are multiple similar to what we transacted elkhart at that are accretive on day, one and we're going to continue.
To do the bolt ons.
For specific technologies and specific markets and really to get R become a well oiled machine on how we integrate and then about that time, we will be ready to move into some more transformational deals and we'll have the balance sheet and the income statements of support that in the cash flow of the support that but thats 24 to 36 months out.
<unk>.
Okay, Okay that sounds that sounds great and then then you just mentioned in the last comment book, but this is my last question.
How are you kind of thinking about the overall debt structure going forward because I know you have 'twenty one notes.
Do this year.
So how are you kind of thinking about addressing those but then also potentially addressing kind of the the <unk>.
Longer term capital structure.
And the ability of what I'll do is I'll ask us subtle to respond to that.
So Tim clearly.
In terms of supporting our long term growth strategy of the vision of getting that capital structure and flexible quite frankly to support that needed is one of the key priorities, but specifically at year end in terms of the notes that came due hearing in January we did pay those off with the combination of cash on hand, and the revolver.
And so that that is behind us as we think about that.
Currently the team continues to be very focused on what that capital structure looks like as we look at the capacity under our revolver and also future activities.
Okay. Okay. So okay. Thanks for thanks for all of the color in the look on the EBITDA.
Yes.
Once again to ask a question. Please press star one on your telephone keypad.
And we do not have any further questions at this time.
<unk> does conclude today's call you may now disconnect.
[music] day.
Yes.