Q1 2021 Myers Industries Inc Earnings Call
Got it.
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Good morning, and welcome to Myers Industries first quarter 2021 earnings call. Joining me today R. Mike Mcgarr, President and Chief Executive Officer, and final Robinson, Executive Vice President and Chief Financial Officer.
Earlier. This morning, we issued a news release outlining the financial results for the first quarter of 2021, if you have not yet received a copy of the release you can access it on our website at Www Dot Myers industries Dot com, it's under the Investor Relations tab.
This call is also being webcast on our website and will be archived along with the transcript of this call shortly after the event.
Before I turn the call over to Mike I would like to remind you that we may make some forward looking statements. During this call. These comments are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, such.
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 that set forth in the company's periodic SEC filings and may be found in the companies 10-K and.
10-Q filings.
I am now pleased to turn the call over to Mike ago.
Thank you Monica good morning to.
A day I'm excited to report strong volume growth, resulting from robust and market demand.
Sales were up 43% year over year and this is the strongest growth Myers is obtained in over a decade.
This demand appears to be sustainable strong and markets.
Ah Re-engineered commercial organization and a new go to market model R delivering results.
R. New strategy combined with successful execution of our self help initiatives set the stage for a solid 2021 and beyond.
I am entering my second year at Myers, and I continue to see significant opportunities that our functions busy.
Businesses and and markets.
Continues to be the most exciting opportunity I've seen in my career.
Without further delay, let's get into the details please turn to slide three.
As I mentioned sales were up 43% year over year, driven by strong growth in both the material handling and distributions segments at a meaningful contribution from the Elkhart acquisition.
All in markets experienced healthy growth spit.
Specifically sales were up significantly in our vehicle and market as a result of continued momentum and the RV and marine markets.
Wholesale R. D shipments were up 79% in March and are projected to reach a record high end 2021, we.
We also saw increased demands and double digit growth in the auto aftermarket food and beverage consumer and industrial and markets on an organic basis sales were up 21%.
Effects accounted for 1% of the net sales growth.
Adjusted gross profit was up seven $9 million, while gross margin decrease from 34, 8% in the prior year to $28, 90% in the quarter.
Margin was negatively impacted by an unfavorable price to cost relationship unfavorable sales mix and higher manufacturing costs during the quarter.
The addition of Elkhart benefited profit, but contributed to the unfavorable sales mix impacting gross margin.
As a reminder, we are targeting $4 million to $6 million in annual cost synergies over the course of the upcoming two years.
Additionally, we are encouraged by the growth synergies, we've started to realize as we operate as one Myers.
Adjusted operating income increased slightly to 11 $9 million.
The increase in gross profit was mostly offset by higher as shooting expenses driven by the addition of Elkhart and higher incentive compensation costs legal professional fees and selling expensive.
Adjusted EBITDA was $17 million, a decline of $400000 compared to the prior year adjusted EBITDA margin was nine 8%.
And lastly, adjusted EPS was 22.
Flat compared to the per year.
Turning now to slide five for an overview segment performance beginning with material handling net sales increased $46 million per 55%, including the <unk> acquisition.
On an organic basis sales were up 22% driven by strong volume mix.
Price on FX accounted for 1% of the growth.
Excluding elkhart sales were up double digits in the vehicle food and beverage.
<unk> and industrial market driven by increased demand.
Material handling adjusted operating income increased 12% to $16 $9 million driven by higher sales volume and the addition of Elkhart, which were mostly offset by an unfavorable price to cost relationship unfavorable sales mix and higher manufacturing expenses incentive compensation costs and legal and professional fees.
And the distribution segment sales increased $6 million per 17% driven by both equipment and consumables sales.
Distributions adjusted operating income increased 5% to $2 million, primarily as a result of higher sales volume, partially offset by an unfavorable sales mix and unfavorable price to cost relationship and higher incentive compensation costs.
Turning to slide fix cash provided by operating activities was $6 $6 million, an increase of $1.6 million over the prior year, reflecting the benefit of working castle.
Free cash flow decreased $1.1 million to one $4 million, reflecting an increase in capital expenditures here over here.
R balance sheet remains strong cash on hand, and quarter handle was $16 $6 million based on our trailing 12 months adjusted EBITDA of $66 million leverage was one two times.
In mid March we amended an extended R credit facility upsizing R borrowing capacity from $200 million to $250 million and extending the maturity date to March 2024, ultimately, providing greater flexibility in R capital structure.
Turning to slide seven let me know be provide information on a revised outlook for fiscal 2021.
Reported net sales are anticipated to increase in the high 30% range, including an incremental 10 and a half months of sales related to the Elkhart acquisition as a reminder, elkhart annual net sales at the time of acquisition where approximately $109.
The increase in net sales from our previous guidance, which was mid to high 20% sales growth.
Corporates the strength experienced in the first quarter, along with continued sales momentum expected throughout the year.
Additionally, the outlook includes the anticipated impacted the second price increase effective April 1st taken in response to continued increases in revenue and steal costs.
From a quarterly cadence we call that R. Prior year second quarter sales were significantly impacted by the slowdown data COVID-19, particularly impacting R industrial and distribution businesses.
Given this comp we expect strong sales growth in queue to on a quarter over quarter basis.
With respect to margin R price increases generally take a quarter or so to start flowing through our results.
Given this wagon price realisation, we will continue to experience higher cost vs price and the first half of the year, but expect that relationship to turn favorable in the second half of the year is raw material costs button and eventually decline.
As demonstrated R teams will continue to take pricing actions is necessary to mitigate the impact of costing basis.
SG&A expenses are now expected to approximately 23 per cent of net sales benefiting from larger scale and the increasing our sales outlook.
Self help generate the cash and the returns that we used to fund the two growth components organic and M&A.
In terms of organic growth at Myers, we are driving change and delivering results.
We are strengthening our commercial processes talent and capabilities.
We are investing in e-commerce, we're changing how we go to market.
Under the one Myers approach, we now go to market as a single company instead of several disconnected independent businesses.
This scale brings strength.
We are one of the only companies that has expertise in the four major plastic molding technologies rotational molding.
Injection molding blow molding and thermal forming we now bring all of these solutions to our customers.
The approach delivers value to our customers and growth for Myers.
Our third element bolt on M&A is focused on growing our businesses by acquiring companies that build out our current technologies build on our competitive strength or shore up our gaps.
We believe significant shareholder value can be unlocked when consolidating fragmented industries like plastics molding and auto aftermarket distribution.
Myers will be a consolidator in these fragmented industries.
Consolidation should allow us to better serve our customers provide better opportunities for our employees and better returns for our shareholders.
Once the key elements of horizon, one are in place, we will move to horizon, two where we will execute larger enterprise level acquisition.
We continue to expect that when we are ready for horizon to several idea targets will be coming to market. So the timing should work well.
Our long term vision culminated with horizon, III, which is focused on growing the company globally.
In order to maximize our potential as a company, we will need to expand globally at scale.
Horizon, one or two we will consider global acquisition debt. They have the right strategic fit and are executable that will likely be horizon three before we acquire internationally at scale.
Our long term vision is ambitious, but well grounded and focused on building on technologies and markets that we know well.
We still have a lot of work to do but we have an experienced team and we are making solid progress.
Please turn to slide nine which outlines the four pillars that drive that will drive the execution of our strategy I won't spend time today reviewing each pillar. However, I will say that each pillar has well defined key performance indicators and an individual owner to drive results.
We have a robust internal integration PMO or program management office that ensures the kpis are met.
Please turn to slide 10, which outlines our progress since we last spoke.
And the organic growth pillar, we see significant opportunity to grow Myers faster.
We are in the process of implementing an improved commercial structure that standardized and strengthens our capabilities in sales marketing and asset and product management.
We recently reorganized our sales structure and launched the new sales training process focused on helping our team improved their ability to cross sell and bring all of the Myers solutions to our customers.
In addition, we continue to focus on growing our ecommerce channel in order to Turbocharge. This initiative, we held a summit to refine our strategy and approach to capitalize on the trends in digital and online.
We're investing in our talent pool, and we will continue to build out our e-commerce team.
As a reminder, our goal for this channel has to be approximately 10% of sales by the end of 2023 and you can expect to hear more about our progress as we proceed through the year.
Moving on to M&A, we are well underway, having strength in our portfolio with the acquisition of Elkhart plastics last year.
The Aircard acquisition has exceeded our expectations, so far and has been instrumental in helping us further advance our integration playbook and our deal flow.
We continue to build a robust funnel of potential acquisitions and believe that we have a strong opportunity to acquire complementary businesses in the near term.
Now onto our accomplishments in the third pillar operational excellence.
Operational excellence involves multiple facets of how we work together to improve our performance every day one.
One example is our focus on procurement on lowering costs and on securing supply over.
Over the past past months supply scarcity has been an issue in the plastics value chain.
Our newly centralized procurement team was able to leverage our scale and their individual relationships to ensure consistent raw material supply.
I have several anecdotes, where our purchasing professionals were able to work together draw upon their individual areas of expertise to ensure myers receive raw materials, even in markets where product was very tight.
On the pricing side, we worked with our customers on a fair and constructive approach to pricing announced.
Announcing and implementing our March one and April one price increases.
We will continue to migrate to a value based pricing approach, where we will price to the value of our products create with our customers.
We anticipate this approach will deliver margin that will allow us to continue innovating and to continue delivering a high level of service and supply reliability to our customer base.
Moving to the last of our four pillars culture in order to execute and achieve breakthrough performance, we need to have a high performing culture over.
Over the past several weeks, we took a significant step forward by holding company wide talent reviews across the organization. So we can build a strong succession planning roadmap that supports our aggressive growth strategy, while developing our employees.
We are seeding our employee base with various experts and leaders from outside the company. This approach as a catalyst it is accelerating our company's transformation.
At the same time, we're also actively developing our employees and promoting from within we have a lot of talent in house as well.
Part of having a high performance culture is to have a culture focused on employee safety.
To that end. This spring, we launched a robust company wide safety training curriculum, which includes live and online classes to ensure that we keep safety top of mind and work work towards decreasing our incident rate on a year over year basis.
In a short period of time, we've made respectable progress against our strategic initiatives. These work tracks and Kpis will ensure that our strategy comes to life and has delivered.
I'll close out today by reinforcing my optimism for Myers future.
I am encouraged by the economic recovery, we are seeing across all of our end markets. The demand is there and it looks to be lasting Myers transformation is underway and I anticipate it will create significant long term value for our customers our employees, our communities and our shareholders and with that let me.
Turn the call over to the operator for questions.
Thank you I'd like to ask a question happens time. Please press star one on your telephone keypad, if you'd like to withdraw your question that's about <unk>.
Our first question comes from Steve Barger with Keybanc capital market.
Hey, good morning, everybody.
Hey, Steve morning, Inc.
It's great to see you being so proactive on price increases to offset input cost just.
We have a robust demand environment can you talk about what customers are saying or any effects that you're seeing on demand relative to price yes.
Yes, Steve share what really the questions that were in the discussions we're having a more along the lines of Kenny supply.
It's less of a discussion around what should price, we're seeing a lot of traction in the end markets from a volume and demand standpoint.
The March increase was successful the April increase is in process, but appears to be successful, but were just seeing a lot of traction on the demand side and that gives us the confidence to move forward on our price, particularly on the products and segments that are value added.
Yeah, well I guess to that point you cited unfavorable mix in both segments.
What's going on there with the mix and is there anything you can do to influence that.
A good bit of that is is the acquisition of Elkhart remember our model is we're acquiring a lot of these founder owned.
Employee founder owned businesses that have a lower EBITDA profile and our objective is through cost synergies and growth synergies to bring those EBITDA profiles up.
Elkhart moved a lot of revenue on a lot of product.
But ultimately had a dilutive effect overall on our EBITDA percent for the company, but all of that is in process of being addressed and it was all part of the game plan. So.
<unk> had a lot of volume Unfortunately, it wasn't the same margin as gas cans.
Got it.
And you talked about preserving and ultimately expanding margin. So I think that was more in relation to price.
I guess first do you need more price actions and what's the timing of getting on the positive side of price cost.
Yes.
I'll give my inside then I'll turn it over to Stan for some of her really.
In the first half of the year Youre going to have some compression I think thats no different than any other converter out there.
We do believe the second half it will turn and we'll have some easing of raw material cost and at the same time, our pricing will be.
I would say fully implemented largely implemented and we should see that margin expansion on the back half of the year.
Additional pricing actions, we don't see at this point.
However.
A lot of it is involved is let's make sure the April increase accounts.
And we are seeing receptivity from our customers on an exactly that happening, but subtle any any additional color from you know I think Mike.
Entirely practices, we think about that.
It's a front half back half story.
And price turning in the back half of this strength for us.
And just keeping in mind once again net net pricing generally takes a quarter or so in terms of a lag in terms of when we're going to see that flow through our income statement.
What's most encouraging Steve is just the underlying demand.
Yes.
That's definitely a bright spot.
So I guess.
The volume versus price versus cost.
As price realization on enough right now to get gross margin back into the low 30% range in <unk> or is that more back half.
So Steve I think the way I believe that is key to we are going to expect some nice volume growth as we indicated due to that.
Year over year comp that we experienced last year, we will continue in the front half of the year to still be unfavorable from a price cost relationship standpoint.
We're not guiding to obviously quarterly gross margin numbers, but what we would expect this over the long term as we continue throughout the year.
See those gross margins continue to increase overtime.
Got it I do have more questions I will get back in queue, but I will give someone else a chance to [laughter]. Thanks, Steve.
Once again to ask a question. Please press star one on your telephone Keypad next question comes from Atlanta, <unk> with Cowen <unk> Company.
Hey, good morning visit Dodger filling in for Lance.
Just wanted to say congratulations on the quarter and.
My question I have two the first one is regarding the M&A from your perspective, how are you seeing the current environment.
Regarding access to capital.
Super Bowl potential targets.
Price objective.
So the ability to integrate how are you looking at at the moment.
Yes, that's a good question.
We will continue to want to be and we're shaping ourselves to be the acquirer of choice.
For many of these founder owned businesses largely on the plastic side, but I would even include on the distribution side and as I talked about there's a lot of shareholder value to be created and consolidation of these fragmented industries.
We are seeing interest I believe the <unk> acquisition was a catalyst in that hour.
Seeing increased inbound calls from.
Smaller companies and founder owned businesses don't know companies that want to sell there is concern about.
About potential tax law changes.
And how would that impact as these.
These founder owned businesses and so.
I believe there's ample opportunities.
I believe that there is some sense of urgency even on the part of the sellers to conclude transactions more in the near term.
From a from a valuation standpoint, clearly there is some capital in the market from a private equity on the private equity side that we bump into but generally speaking the businesses that we seek to acquire that have a strategic fit.
And even more importantly, a cultural fit.
A lot of those businesses want to stay with the strategic how all those businesses prefer two to align with our our vision for what we're trying to create.
And I continue to believe that we'll be able to acquire companies.
At the stated multiples that we've discussed in the past.
Got it.
And just the last question from me if I go back to queue.
So I understand on the EPS guidance.
Turning towards the higher AD load book just good right.
My question that book, what are the factors more sub say when determining the range. If you will it sit perhaps additional cost pressures the ability to price to.
To pass on the price increase or perhaps other other.
Permanent.
It's a good question I'll ask Donal add some color to that to that to that question. Yes. Good morning, Jonathan. Thank you for that question. So so just clearly we have not.
The overall range that we provided guidance non than we've guided to the hiring in that range. If you look at that compared to where we were.
Compared to the mid of the range, an increase of anywhere from 6% to 8%. There. So the factors impacting that we took our topline guidance apparently so previously we were guiding to that mid to high 20% in sales with that 30% or so increase in sales. The way you should think about that breakout is 19% or 20% or so.
Related to the acquisition, which then leaves probably in low double digit volume growth in our Inc.
<unk> and our estimate which is increase from where we were since we started the year and then the balance on price. So we've got benefit of some some volume actions going on there obviously pricing, that's giving us a little more confidence as we are recovering some of the increased commodity inflation that we've seen and so those factors are coming into play here.
Understood. Thank you so much and then again congratulations.
Thank you Tom Thanks, Jim.
Once again to ask a question. Please press star one on your telephone Keypad question comes from Steve Barger with Keybanc capital markets.
Thanks, Jim.
Moving to some of the pillars for the commercial Excellence program is is the training done and can you talk about any specific wins to give US. An example of how the cross selling is going.
Yeah for sure Steve.
The training is in process we've got.
Approximately 60 salespeople, we're about a third through with that training, it's actually it's not.
A one day training, it's actually a months long process, it's very robust I used at a prior company that was very attractive.
So I would say.
Steve will probably 30% complete give or take on the training and development, but part of it also is we just launched what we call Myers University.
Which is an in house.
<unk> development tool designed to really to attract and retain all functions and all of our employees both les.
Labor oriented Inc, and professional and so this will fold into that.
The commercial excellence piece will ultimately fold into Myers University.
A lot of it is the standardization of roles.
Moving away from the Opco approach that we've had for the last five years and moving into a consolidated approach, where we have standardized rolls on market management product management asset management sales sales management for for Myers.
Particularly in separating material handling and distribution.
There is probably.
I'd say eight to 10 meaningful cross selling opportunities.
I don't know if its physical I want to mention their names, but there are several accounts, where often we're seeing it debt their rotation of molding account that also purchases blow molded or thermal formed product and because of the supply issues were actually seeing some of our competitors in the market some of the smaller converters.
Having supply interruptions from a resident side and we've been able to step in or they have supply interruptions because of labor.
And we've been able to step in and pick up business with a high quality from a product standpoint, and a high service level and we're not having to buy the business.
And those customers are indicating they're going to stay with us at particularly after we've gotten them through a tough spot.
Is what we've been able to do in a very short amount of time on purchasing and ultimately supply chain.
Right.
E Commerce with demand as strong as it is that becoming bigger faster than you expected.
Yeah, I think it's good business, it's good margin business.
We were trying to study it so that we we sell the right products into the right and market.
Without exacerbating channel conflict with some of our industrial distributors, we're trying to to thread the needle there. So that we are a good supplier customer to our industrial distributors.
But then also we have a direct approach.
With some of our own product.
I think we're striking net right balance.
We have we are fortifying net team, we discussed that before Chad columns Nelly that team, we've actually had to.
Two good ads on.
E Commerce leaders, who have done this and developed us and other industrial companies.
The answer there as we look at it as a flywheel. It is a high profit margin flywheel and really the constraints Steve is on having enough labor in our plants to make enough product get that product out the door, but there is plenty of demand on the e-commerce side and remarkably it's quality business. It's good business.
Even with the kind of inflation led increase in revenue.
You are currently seeing or are you still going to track to the 10% E. Commerce by 2023 any change to that no no no. We will easily so yes, we will try to that and no. There is no change to it.
There's a lot there's there's a lot there.
Got it just a couple of modeling questions for Sano.
<unk>.
Easy comps, obviously for <unk> do you expect sequential increases in revenue in both segments into queue from <unk>.
Yeah.
Correct.
Okay.
Okay.
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