Q2 2021 Myers Industries Inc Earnings Call
And.
Ladies and gentlemen.
The longer term.
Great.
Good morning.
Yeah.
[music].
Good morning, or good afternoon, and welcome Steve Myers Industries 2021 in the second quarter earnings call. My name is Adam and I'll be your all parts of today. If you would like to ask a question during the Q&A portion of today's call Jimmy Choo sales by pressing star Philip on 1 on your telephone keypad I will now hand, you over to Monica Vinay its debt and some other kind of please go ahead when you are ready.
Thank you.
Good morning, Thank you for joining us and Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industries. Joining me today are Mike Mcgaugh, President and Chief Executive Officer, and subtle Robinson Executive Vice President and Chief Financial Officer.
Earlier. This morning, we issued a news release outlining the financial results for the second quarter of 2021.
And we've not yet received a copy of the release you can access it on our website at Www Dot Myers industries Dot com under the Investor Relations tab.
This call is also being webcast on our website and will be archived 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 this call. These comments are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
States on our strategy and my closing remarks, but for now please turn the slide 3 for an overview of our second quarter results.
Continued strong demand across the material handling and distribution of segments drove a 58% year over year growth and sales and we delivered a second consecutive quarter of year over year revenue growth and access of 20 per cent on and organic basis, with all and market supplying solid growth the.
And from our customers of strong and it looks to continue we of the leading market share of high quality well regarded products and we've seen that the demand for these products is durable and lasting even and depend on it.
I'm pleased with our niche market focus and approach and provides the solid foundation on which to build and grow Myers.
Despite R exciting longterm vision. However, we've had some short term headwinds increasing raw material prices and other inflationary pressures continued throughout this quarter and in some cases for more than we anticipated.
While we expect them to be temporary and nature. The short term raw material issues around supply and cost of Escalations have been unprecedented we've.
We've taken Swift action announcing and implementing price increases and March and April and again and July. Unfortunately R finished good prices were not able to keep up with the pace of cost increases and we experienced margin compression during the quarter.
As we've said before we're committed to restoring and expanding our margins across the enterprise. This is 1 of the key objectives of the self up component of her eyes and 1.
Like many companies, we're also seeing tightness and the labor market and while we're working to mitigate the impact labor cost increases and scarcity have been a headwind and 2021 that will likely persist and the near term.
Over the coming months will remain diligent and monitoring and adjusting our actions to mitigate the impact of inflation.
We're working to ensure we strike a fair longterm mindset with our customers doing our best to ensure they have supply.
And on sharing of products are priced appropriately for the value of they provide.
R. Self help efforts are delivering results and we're headed and in the right direction strategically and operationally.
We are transforming Myers and are successfully executing against R longterm vision and strategy.
I would now like to turn the call over the son of Robinson R. Chief Financial Officer to provide details on our financial results and guidance subtle.
Thank you, Mike and good morning, everyone, let's begin with the review of our second quarter financial results on side for net.
Net sales were up $69 million and increase of 58% excluding the impact of the al current acquisition organic net sales increased 26%, Steve primarily the higher volume next for.
Favorable price contributed 5 per cent and FX 1 per cent sales increased and both are material handling and distribution segments and all key and markets.
Adjusted gross profit was that $12.5 million on gross margin decreased from 36% and the prior year to 29.4% and the quarter.
Margin was negatively impacted by higher raw material costs, primarily resin, which continued to increase sequentially during the quarter. These.
These costs for and not fully offset by higher prices, which led to an unfavorable price the costs relationship.
Adjusted operating income increased $2.8 million to $15 and $1 million.
The increased and gross profit was mostly offset by higher SG&A expensive driven by the addition of Elkhart higher salaries and incentive compensation costs and higher legal fees.
Adjusted EBITDA was $25 million and increase of $2.4 million compared to the prior year.
And adjusted EBITDA margin with 10.9%.
And lastly, adjusted Eps's, 29 cents and increase of 6 cents or 26% compared to the prior year.
Turning now the sci-fi for an overview of segment performance.
Beginning with material handling net sales increased $56 million for 70%, including the Elkhart acquisition and and organic basis material handling net sales increased 24% due to strong volume mix. We gained an additional 6 per cent due to favourable price and 2 per cent and effects.
Material handling adjusted operating income increased approximately 8% to $17 million driven by higher volume mix and the addition of Elkhart.
Which would partially offset by and unfavorable price the cost relationship do the escalating raw material costs and higher SG&A expensive.
The increase and SG&A expenses was primarily due to the addition of Elkhart higher salaries and incentive compensation costs increased travel costs and legal fees.
And the distribution segment sales increased $12 and $6 million R, 34% driven by both the equipment and consumables sales.
Distributions adjusted operating income more than doubled from the prior year to for $2 million. The growth was driven by higher volume mix that was partially offset by higher incentive compensation costs.
Turning to 5.6 free cash flow was $11 and $7 million and the quarter and increase of $8.1 million over the prior year driven by higher cash from us on.
On a year to date basis free cash flow of $13.1 million cash on hand, and Carter and was $13.5 million R.
A balance sheet remains strong at the end of the second quarter leverage was 1 times R. Capital structure continues to provide the flexibility needed to execute R growth strategy and on July 30th we utilized a revolving credit facility to finance the trilogy acquisition.
Turning the side 7 before providing an update on guidance, let me take a moment to discuss the ongoing and macroeconomic environment.
As Mike mentioned and similar to many other industrial manufacturers, we are facing what we believe R. Temporary distractions and the supply chain, which have led to unprecedented increases and raw material cost of this year.
We have continued to take pricing actions to mitigate the significant increases, but due to a lag and Chris realisation, we have not been able to keep up with the pace of the cost increases.
As a result, we expect to remain and an unfavorable price the cost position for the third quarter.
Who believe many factors, including additional supplier capacity should result, and rising costs moderating and potentially evening as we continue through the year as.
As such we expect R price of the costs relationship to turn favorable and the fourth quarter.
Let me now provide an update on R outlet for fiscal 2021, which includes the expected results of the trilogy acquisition and completed on July 30th.
Reported and net sales are anticipated the increase in the mid 40% range of previous sales guidance was on the high 30% range.
Note that a little more than half of the expected increase of of the prior year is due to the impact of both the elkhart until the <unk> acquisitions.
Elkhart annual net sales at the time of acquisition or approximately $100 million and.
And Triologies annual net sales are roughly $35 million.
We are reaffirming R 2021 outlook for adjusted EPS of 92.
To 1 dollar and 5 cents per share.
R guidance reflects the weighted average share kind of 36.5 million shares and.
And also note. The trilogy is expect it to be slightly accretive to EPS and the current fiscal year.
Other key modeling assumptions include depreciation and amortization expenses of approximately $23 million and.
And capex of approximately $15 million to $18 million.
Capex is expected to try and higher than pastures with a renewed focus on investing and our facilities and improving our capacity along with the addition of El curtain trilogy.
Interest expense is forecast the forecast the to be between 4 and 4 and a half million dollars and the effective tax rate is forecasted to be 26%.
And closing while the short term is and pressured by significant inflationary headwind R. Long term fundamentals earn tact, we continue to manage cost increases through pricing actions, while balancing the potential impact on volume.
R teams are working extremely hard and this dynamic environment and we appreciate all of their efforts.
Before turning it back over to Mike I would like to extend of warm welcome to the trilogy team.
And we'll now turn it back over to use to private and and update on the strategy. Thank you. So I appreciate it.
Now please turn to slide a.
I introduced R. Long term roadmap on October of last year, and a short period of time, we've made meaningful progress against the current phase of this roadmap for is the 1 and.
And R transformation of Myers is well under way.
We have of shareholder focused value, creating vision for our company.
And I believe we have the right team and place with the right strategic plan and the right focus on the execution to make it a of reality.
And we're off to a strong start and we continue to execute against R Bowl of transforming R material handling segment into a high growth business.
But the true motivator of engineer classic solutions for.
And we also continue to grow and all of the monitor and distribution segments.
For us and 1 of our strategies rooted and the execution 3 areas from the 1 self help initiatives, which includes improvements and purchasing value based pricing and SG&A optimization.
Number 2 organic growth fuelled by sales and commercial excellence and 1.
And important component of which is to build out R E Commerce channel.
The number 3 bolt on M&A to build out of our existing businesses.
Continued execution across the 3 elements will propel us into Verizon to where we plan to use our cash flow and knowledge gained from Verizon and 1 to pursue enterprise level and the day in North America.
The focus of rise of 3 will be to pursue enterprise level M&A on the global scale.
This vision and roadmap.
The supported by R for strategic pillars outlined and slide 9.
Because I've described each pillar and detail and previous calls I'll move the slide 10, and give an update on the recent progress we've made with respect to each.
On the organic growth from we continue to make headway and implementing R improved commercial structure that standardizes and strengthen our focus and sales marketing and product management.
We're installing a world class commercial organization of Myers and.
All of this will take some time, we are moving the needle with new additions and your training.
Examples of R areas of focus include improving our capability and processes and account planning and account management and demand planning and and optimizing how we run our supply chain and planning processes and.
Additionally, through critical investments and talent and infrastructure, including the summit, we held last quarter, we of 4 to 5 a standalone E Commerce organization and we're seeing good traction with that group.
From pillar to as it relates to emanate for.
We're very pleased to of closed on our second bolt on acquisitions to supplement R plastics business.
[noise] trilogy, plastics, as well aligned with our strategic objectives and culture and has an exemplary track record of providing high quality products to its customers with superior service and on time delivery.
We're targeting approximately $1 million annual cost synergies, which we expect to realize by the end of 2022.
First of this will be true supply chain cost reductions.
This is on top of the $4 million to $6 million of cost synergies, we expect from Elkhart.
In addition to these cost synergies, we're seeing growth opportunities and synergies with Elkhart and we expect the same from trilogy.
As expected and and the part of our Horizons and 1 approach and we pursued more acquisitions R organizations learning.
Or fine tuning R playbook, and our capabilities to identify and complete deals as well as to integrate and obtained synergies. This plan and approach R working for gaining capability and speed as we move forward.
Trilogy was an important step on our journey and we continue to seek opportunities to acquire complimentary businesses and we currently have numerous actionable targets and R pipeline.
Moving on the operational excellence.
This pillar has been integral to our growth over recent quarters.
And the myths of global supply chain issues are newly centralized procurement teams done a good job sourcing the necessary raw materials to meet most of our customers needs.
The last several months of been a challenge on raw material costs and availability.
Baker and his team and procurement and supply chain have done a nice job on both issues.
Over the past months, we position Myers of the value added solutions provider we've.
We've made thoughtful of decisions on price and supply to ensure we create longterm goodwill and value for our customers as well as all of our stakeholders.
As you May obtain Myers recently available new brand identity logo website, we consider this new visual identity to be much more than aesthetics change.
The rather strategic choice to reflect R..1 Myers vision and reinforce R key values of integrity and.
Of optimism customer focus and of can do attitude.
We're changing signs business cards. The website name badges all 2 of single 1 team mindset.
For none of them all of our collection of smaller brands for coming together as 1 company.
We have more critical mass more capability to serve our customers or employees. It is exciting it's working.
With that on turn to our fourth pillar, which is R high performance culture.
In order to execute and achieve breakthrough performance, we need to have a high performing culture. Tibet is we recently launched R. New Varney management system, which is comprised of live and online classes to help drive growth improvement and continuity and our employee base.
We see that this element, we see that illness will help us win the war on talent.
R employees see that we're investing and down and their careers and and the development.
We want our employees to grow here at Myers.
We're creating a culture of employee success within the company.
This includes the type of training and employee development programs and career and succession planning typically found it larger world class companies we.
And we seek to replicate that here.
R people are and will be a key competitive advantage.
I'd like to close today by thanking the Myers team again for the hard work, we are serving our customers and is very fast paced economic environment, while managing quality and service.
All of our long term strategy is gaining considerable momentum.
It is producing tangible results that we believe will create significant long term value for our customers or employees R communities and our shareholders and.
And with that will now open the line for questions operator.
Thank you as a reminder, if you'd like to ask the question. Please press staff from of by 1 on the telephone and keep us out of the parents of ask a question. Please and show your head says fully booked and and on muted Luckily of star full of glowing blob.
First question today is Steve Palka from Keybanc, Steve Please kind of hydro <unk>.
Thank you good morning.
A lot of morning, Mike.
Good morning, everyone.
And you you've been aggressive on price you're still on behind on price cost for the first question is half the price increases had any impact on demand or could you just talk about and market dynamics as you see them.
Yes, Steve at this point the.
At this point no at this point, no, there's and acceptance and the market based upon the inflation you are seeing and all raw material.
We.
We still feel we've got.
Good success and implementing the recently announced July and August increases.
We're not seeing demand fell off and the market markedly and of market way.
There are certain they're moving certain submarkets, where you may have some pauses, but generally speaking of nowhere not seen it impact demand at this point.
And you said you expect the supply chain disruptions of temporary what's the thought process there and what are you hearing from suppliers in any way the handicapped handicap 1 of those prices might start to roll off.
Yeah. So a lot of it is on the polyethylene polypropylene side, but also steel to a lesser degree of polyethylene side of polypropylene side of.
The number of those factors came to play we had COVID-19 and the pandemic, which pushed out maintenance turnarounds windows maintenance turnaround for to be done and we had the freeze.
The spring, which throughout over 2000 and force matures that was.
That was the unique circumstances of events that has pushed out more maintenance turnarounds into the second and third quarter.
We think that the.
That it will appeal and stabilize and revert over the course of the next month, but we don't have a crystal ball, it's tough to read that 1 it's tough to read that 1 so subtle.
Several of information of we expect price of the cost of the gain ground and fourth quarter favorably is accurate.
What percentage of the product line has contracts, where you can't push the price right now until contract renewal.
Yeah.
Yeah and at this point, we have not disclosed that and the past and so.
I would prefer not to not to disclose does this time of Steve.
Okay, well do you have any product lines right now that are breakeven or unprofitable R. As everything's still contributing.
At this point I don't want to go on to the specifics of I would say there is significant demand.
That's the positive the short term disruptions from of price standpoint on polyethylene Todd propylene of been significant for.
Of addressing that with the price increases R.
More of the vast majority of our product lines continue to contribute.
However, we need to get that more healthy and you can see that and then our and our EBITDA second quarter versus say on quarter of the meat.
And we need the main revert Steve.
Yeah, I understand and it's Ah.
It's an unusual situation and the last question for me and the this is I know which of those are fun, but first half over first half sales are up more than $120 million, but operating and comes up 3 million Bucks and I know the a huge driver of that is the input cost inflation of that you are talking about but.
What did you expect to see R. What should be the normalized operating leverage from a combination of organic growth and acquisitions.
Yeah of.
Certainly do kind of taken care of Steve Steve.
I will sign in terms of R. Gross margin compression and this quarter. So we were down 660 basis of planes as you think about.
R commentary on being unfavorable from a price the costs relationship.
About 2 thirds of that was due to the to this relationship of the compression so and.
And she look out for the <unk>.
And some of the starts to turn and we would expect to regain much of of the of this margin per person that likes him. Yeah. Yeah. That's right that's right and you know there.
The incremental on labor labor shortages labor scarcity.
I think the labor scarcity is going to be of a headwind for the next quarters.
That's hitting everyone, you're covering and on premium labor expense, but also has a lot of the supplemental unemployment insurance falls off.
Barring barrio curve balls from Covid, we expect a good bit of that to be remedied. Now. We're also taking proactive actions on staffing solution employee development employee investment employee training and I I feel confident that we're closing that gap, Steve, but the labor scarcity and labor costs has also been of head.
With.
Understood. Thanks.
Thank you.
Our next question is from Jonathan enough of rent from Covid kind of of the New line is now open.
The morning, do the job and on for.
The lands congratulations on the on the quarter. My first question of with material handling and the increasing 32% of organic me.
And can 1 of those whom the organic sales volumes increase or with the just the function of of increasing and price.
It's now and get good morning, Kenneth and that's the tunnel. So yes of that 32% approximately 24% of that was volume mix and so that was driven like good and solid growth there on that side, 6% and from pricing and then about 2 from FX.
Okay and shattered.
Now I know that you guys have raised prices and 3 months on this year and and you're still not able to catch up the costs. Eventually I'm sure you will once and you guys do reached the point where prices and ketchup do you see the potential.
What did you think prices R remained thinking of into the season, the a potential tailwind for interest.
And Q4, and and then the remainder of 22 or how do you guys do that.
Yeah, Hey, Jonathan and this is Mike so it kind of goes back to some of my comments, we make high quality.
Highly reliable products that we continue to invest in and.
Based on that we believe that and.
We can price are products of the value of they create for our customers.
And I mentioned, we want we want of focuses and the look with the long term mindset and of fairway with our customers on the same token we want the price the value of it and not price off the costs. Those 1 of the initiatives I've talked about and the past that's 1 of the initiatives. We haven't Myers of Thunder way is focus on value based pricing.
I don't know of that ensue quite shocked and get more specific the rocket trying to.
That's helpful. My last question.
And noted that.
The financial reasons that become a portion of of of of.
Of the balance sheet, and I'm wondering and says something that and.
It.
And.
And will remain like the status quo of going forward over the.
And shows opportunity that the came up and do you exercise and take them.
Yes, Jonathan no. It it's really not a structural change and how we think about R capital structure and and how we will proceed going forward. It really was an opportunity and as we took a look at the the project and find that we had announced and the opportunity of that essentially salad and when they come back as the luxury of that process.
Okay, great. Thank you and congrats.
Yes, Thank you Jonathan.
And and further questions are present, plus the reminder, that 1 on the telephone keypad.
We have a follow up from Steve <unk>, Steve. Please go ahead.
Thanks.
Mike and the past you said the Myers is 1 of the only companies that can bring the for plastic molding technologies to market can you talk about how that is translated into new product wins, and the marketplace or or how customers of responded to the broader capabilities.
Yes, it's early day, Steve that we're seeing proof points for seeing that play out.
We've done the cross training and I can't remember, what I've mentioned on prior calls and not for example, we had a rotational molding sales and technical growth in our and our blow molding plants. Because there is the most overlap there and vice versa. So that they understand what our capabilities are of the company what does the good order and look like in terms of probably.
This volume run rate et cetera on the blow molding and the road and molding side, we're seeing most of the cross selling occurring there.
Specific the specific what's the revenue from that at this point.
The single digit millions of dollars, but I do think that you've got some upside there over the course of 2022.
1 of the the Ah hypotheses of of our approach on the for plastic molding technologies, it's bearing out of playing out what's interesting. However, we have a new leader and leading the distribution platform and that the results of that business.
R R.
R. R R pleasing to me and to the team.
We're also seeing some initial cross selling opportunities, even and distribution of the plastic products. We make as an example of the kanban than that or and Acro mills.
And some of the storage containers that are made over and Buckhorn R. Just raising the awareness of that 130 of.
Sales team Parsons sales team about the products, we make and how they could move them even those segments previously Steve had been and then bifurcated.
So that we're seeing more volume on the 1 Myers approach quite frankly.
Like to also be seeing more price, but we're getting there we're getting there for selling a lot of the moving a lot throw of P&L.
And we just need to see the pricing hit and of more pronounced way and.
And so that we actually hold back more of that on the bottom line.
On the last call you said the sales training was the 30 day process I think and it was about 1 third done so assuming that is now complete is well I guess, that's the question is that complete through the organization on both sides of.
Yeah, and maybe I misspoke before it's more of like a 90 day process, Steve I, we have the waves that are going through the distribution team. We're training the management, but not all of 150, but of the other 60 or 70 sales people. We have on the material handling side I believe it's largely done are very soon will be.
And that's part of of what we're seeing a lot of the success.
R salespeople are even more focus on customer needs customer need identification, creating value for our customers and we're seeing that drive some of the volume in addition to the recovery of the and markets.
You know quite frankly R. R focuses being sure we'd get all of the volume out of our assets.
We're ready for 1 and I am.
Pretty hard.
With not enough bodies to fill the roles I mean, you've got 2030% more volume and you may be down.
10 or 15%.
Bodies to run those plants and so we have mandatory overtime as an example.
Work R people are working really hard to keep up with demand and that's been a headwind is the laser scarcity, that's probably been 1 of the limit the meters.
Is there any way to mitigate that is it is it a function of you know as you think longer term do you need to move the location of of some of these facilities to of more populated area or how do you think.
Or is it not imation play what do you do.
Yes, it's an automated and play that's a little bit longer of the little bit of longer term answer we have some automation consult instead of each of our facilities that are helping us identify opportunities and a lot of them are not a huge huge capital expenses, but more on the.
Incremental so that's and play I'll also we've got a number of of pilots.
Some of which are really bearing fruit.
On the either tapping.
Seasonal R migrant workforces that can come up and and contributed immediately.
And that and since there is a bit of of language barrier you got to work through but I will tell you, Steve it's something some and innovative solution. Some of our HR leaders of come up with that we're seeing.
Really early success and.
Quite frankly, it's.
And my past life, and the saving business and construction business that was a very common practice.
To bring up Htlv's of workers and we're looking at how do we replicate that here and it's bearing fruit and that's.
And that's why I said and I think that gap is going to continue to close the unemployment supplement falls off and as we implement some of these creative solutions on additional staffing R.
Also at the same token of the employee of development and the LMS system, and then quite frankly, we're going to and we've had to raise R hourly rates.
And.
And that's 1 of those the 1 on the other issues, but I believe it's under control and I believe we are performing Walnut states, but.
First half of this year and southern near term it it will be a headwind labor availability and then and.
And it using that labor and run on plants.
Yeah. The last 1 for me I know, it's still small, but any update on e-commerce, and I know that as a and.
And exciting new channel that could grow.
It's very exciting we've got a good team I am really pleased with the folks that Chad columns of being able to put in place the very talented we use it as of flywheel the margins and some for some customers and channels are actually very good. Some non is good and at this point right now our plans for running so hard we've.
Actually had the prato it a little bit because we.
We can't get the volume off of the US a good problem to have that's a good problem to have the debt E. Commerce channel is really put bearing fruit and I think it's going to be a secret to our success and the future.
[noise] alright, all of the best Thanks Bye.
Thanks, Steve.
Nothing further in the queue of presents from the front of the reminder, that stuff on on the telephone keypad.
How do we have no further questions or 100 Bucks and the management team for any closing remarks.
Thank you.
Thanks to everyone for your time and participation today, we appreciate your interest and Myers industries have a great day and.
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Ladies and gentlemen. This concludes today's cool. Thank you very much from the attendance you may know cause connect you rely on.
And.
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