Q4 2021 Myers Industries Inc Earnings Call
Yeah.
Yes.
Hello, everyone and welcome to the Myers industries defaults in 'twenty, one fourth quarter earnings call My.
My name is Victoria, and there'll be quarters Youku today, if you'd like to ask a question. During the presentation. You may do so by pressing star one on your telephone keypad. If you wish to draw. Your question. Please press star two if you have joined US online. Please press the red flag icon.
Bank to ask a question. Please ensure that your line is on mute locally.
Also with your host Monica Vinay to begin please go ahead.
Thank you.
Good morning, and thank you for joining us 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, and final Robinson, Executive Vice President and Chief Financial Officer.
Earlier. This morning, we issued a news release outlining the financial results for the fourth quarter and full year of 2021.
If you'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 provisions of the private Securities Litigation Reform Act of 1095, 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 are set forth in the company's periodic SEC filings and may be found in the company's 10-K and 10-Q filings.
Im now pleased to turn the call over to Mike Mcgaugh.
Thank you Monica good morning, everyone and welcome to our fourth quarter and full year 2021 earnings call.
2021 was an important year for Myers, we made meaningful progress against our horizon, one goal and we continue to build the foundation to ensure we execute against our long term three horizons strategy.
Specifically this past year, we revitalized our sales marketing and operational capabilities by adding a significant amount of new tower.
We implemented new processes and systems across the board that are helping the company become great.
We announced another acquisition in our material handling business, so new plastics, which is already had a positive impact to both our top and bottom lines.
I couldnt be prouder to lead this revitalized company and rejuvenated organization.
I want to thank the entire Myers team for their great work in 2021.
Please reference slide three and four as I share with you details of our performance in 2021.
I am excited to report that we had a record setting year for topline growth with revenue coming in at $761 million.
Representing a $251 million or <unk>, 49% increase over 2020.
This growth is a testament to the team we've assembled at Myers and the demand for our high quality products across all of our end markets.
Excluding our two recent acquisitions Elkhart in trilogy, our organic net sales increased 25% compared to 2020.
In addition to the top line performance, our bottom line improves as well.
Adjusted EBITDA increased $6 million or 9% versus the prior year.
We generated $45 million of cash flow from continuing operations were $27 million of free cash flow for the year.
We continue to have the financial capacity and flexibility to invest in and grow the company both organically and through M&A.
We continue to execute we continue to make the company stronger and better.
Demand for our products is robust and 2021, we demonstrated that we have the operational capability to deliver against this demand and exceed our customer expectations.
When our customers struggled to get raw materials supply our competitors struggled to get raw materials supply or to meet customer orders Myers was able to prevail and deliver for our customers.
We fortified our reputation as a supplier that our customers could count on.
While we run our plants hard and deliver against robust customer demand. We also ensure that we price our products for the value they deliver.
In 2021, we built an in house pricing Excellence group that helps our commercial teams identify opportunities to improve price in a way that's constructive with our customers.
We focus on creating value with our customers and then sharing in that value created everyone wins in this approach.
I'm now entering my third year as CEO of Myers, and quite frankly, everything is right on schedule.
My first year of 2020, we put in place some key people and started to get the foundation of the company realigned reoriented towards growth.
And my second year. These key senior leaders continue to build out their team with excellent talent in the mid levels of the company and.
And we continue to install commercial and operational processes borrowed from larger world class companies.
I expect that in my third year, we will hit stride and all the great things. We did in 2020 and 2021 will begin to deliver remarkable results.
The key takeaway that I would ask you to consider is that in spite of significant headwinds on labor and on raw material cost and scarcity Myers prevail.
We had a great year on revenue growth, we secured raw materials at a competitive cost and we worked our pricing.
We turned the corner in fourth quarter on margin as we reduced the amount of compression we experienced in prior quarters.
I am excited about the momentum we are bringing to 2022.
Before I update you on the execution of our strategy I will turn the call over to final Robinson, our Chief financial officer to provide details on our fourth quarter financial results and full 'twenty two outlook.
Thank you, Mike and good morning, everyone.
Beginning with a recap of our fourth quarter results on slide five sales were up significantly an increase of $62 million or 45% excluding.
Excluding the impact of Elkhart in trilogy acquisition organic net sales increased 28% driven by price, which contributed 19% higher.
Volume mix contributed 9%.
Sales increased in all key end markets in both the material handling and distribution segments.
Adjusted gross profit increased 31% or $12 $4 million, driven by higher priced higher value mix and the <unk> acquisition.
As expected our price to cost relationship on raw materials flipped to a favorable position in the fourth quarter and contributed to the gross profit increase.
However, inflationary pressures from increases in labor and manufacturing cost continue to unfavorable impact our results and partially offset gross profit growth.
Note that while we continue to experience gross margin compression in the quarter the magnitude of the compression significantly improved on a sequential basis gross margin was down 300 basis points year over year in Q4, compared to 840 basis points year over year in Q3.
Adjusted operating income was $12 $5 million, an increase of $6 $1 million driven by higher gross profit, partially offset by higher SG&A expenses.
SG&A expenses increased due to the addition of Elkhart in trilogy, higher incentive compensation costs and professional fees.
Yes, adjusted SG&A as a percentage of sales decreased to 22% in the fourth quarter compared to 24, 7% in the prior year benefiting from our larger scale.
Adjusted EBITDA was $17 $6 million, an increase of $6 3 million or 55% compared to the prior year. Adjusted EBITDA margin was eight 8% for the fourth quarter compared to eight 2% in the prior year.
Lastly, adjusted EPS of <unk> 23.
An increase of 12 more than doubling last year's fourth quarter EPS.
Turning now to slide six for an overview of segment performance for the quarter.
Beginning with material handling net sales increased $55 million or 60%, including the <unk> acquisition.
On an organic basis material handling net sales increased approximately 34% driven by favorable price of 25%.
Strong volume mix contributed another 9%.
Organic net sales increase in the vehicle industrial food and beverage and consumer end markets.
Material handling adjusted operating income increased $4 1 million or 46% to $13 2 million.
Higher prices more than offset higher raw materials in the quarter and along with the benefits of acquisitions and volume drove the increase in operating income.
Inflationary pressures related to labor and other manufacturing costs, partially offset these benefits along with an unfavorable sales mix.
SG&A expenses increased primarily due to the Elkhart metrology acquisitions and higher compensation costs.
Turning now to the distribution segment sales increased $7 million or 16%.
Solid demand across both equipment and supplies contributed to an 8% volume mix increase price contributed another 8% as well.
Distributions adjusted operating income increased $1 8 million or 51% to $5 4 million.
<unk> price to cost relationship and increased volume more than offset higher SG&A expenses.
Turning to slide seven we generated strong free cash flow during the quarter.
Free cash flow was $27 8 million compared to $10 7 million for the fourth quarter of 2020.
Cash from operations increased in the quarter, primarily driven by favorable working capital along with income growth.
Capital expenditures were $3 $6 million for the quarter and cash on hand at quarter end was $17 $7 million.
Overall, our balance sheet remains strong with leverage at one four times, our capital structure continues to provide us with the flexibility needed to execute our long term growth strategy.
On slide eight turning now to our outlook for fiscal year 2022.
Net sales are anticipated to increase in the high single digit to low double digit range, which includes an incremental seven months of sales related to the trilogy acquisition.
As a reminder, <unk> annual net sales at the time of acquisition were approximately $35 million.
Significant pricing actions taken throughout 2021, combined with healthy underlying demand across most of our end markets are expected to drive growth in 2022.
Keep in mind, we began to see the impact of pricing actions more heavily weighted in Q3 and Q4 of 2021.
As such when you consider the impact of these actions in 2022, we expect to see a larger year over year benefit in the first half of 2022.
From a top and bottom line standpoint.
While resin costs are somewhat moderated coming into 2022 labor and manufacturing costs are expected to be higher.
The pricing actions taken to date, along with our ability to continue to take price in this highly inflationary environment are driving our expectations of approximately 200 basis points of gross margin expansion in 2022.
SG&A expenses are expected to approximate 22% of net sales.
Primarily reflecting investments, we are making our people processes and operational efficiencies.
Below operating income we are projecting approximately $5 5 million of interest expense and effective tax rate of 26% for the year.
Our guidance reflects a weighted average share count of $36 5 million shares.
Taking these assumptions into account, we expect an adjusted EPS range of $1 20.
To $1 40 per share.
At the midpoint of our range. This reflects more than a 30% increase over our 2021 adjusted EPS.
2022 has started off very strong.
<unk> healthy demand in core customer segments, including our seed business and continued momentum as we proceed through our first quarter.
Other key assumptions impacting EBITDA and cash flow include.
Depreciation and amortization expenses of approximately $23 million.
And capital expenditures in the range of $25 million to $28 million.
Capex is expected to trend higher than past years, as we continue to invest in growth capabilities and drive operational flexibility and efficiencies.
We expect higher earnings translate to increased free cash flow despite increased capex.
And we expect to see benefits from initiatives, we've launched around payment terms and the sales and operations planning process to continue to benefit working capital.
As I wrap up my comments I'd like to thank our team for their tireless efforts on delivering a strong fourth quarter and for the momentum going into 2022.
I am encouraged by the foundation that has been late to successfully execute our plan in 2022 and a solid strategy that allows us to continue to accelerate sustainable long term growth.
With that I'll turn the call back over to Mike to provide an update on our strategy. Thank you soph I appreciated, let's turn to slide nine.
As I previewed in my earlier remarks, our long term vision. The <unk> strategy has proven to be the right path for our organization.
Made significant progress towards our horizon, one goal of being at a run rate of $1 billion in revenue with 15% EBITDA by the end of 2023.
We will maintain consistency and continue to stick with our long term strategy.
It's clear straightforward our people can understand it and executed it.
It will create significant shareholder value.
We continue to drive execution of the strategy through three elements self help which provided the funds to invest in the next two elements organic growth and bolt on M&A.
In the area of self help I'm, especially pleased with our operational improvements in 2021.
We've improved our capabilities in sales and operations planning S&P, which has allowed us to get more volume out of our plants and better fulfill our customer orders.
We have made asset management and product management cornerstones of our business processes.
These changes are driving results.
In the area of organic growth over the course of 2021, we revitalized our sales force. Our teams are now focused on growing on cross selling and on price realizations.
We have provided robust training and new tools to help our sales professionals better identify and meet customer needs. We.
We are seeing the results of our sales revitalization.
In addition, our new turbocharged approach to E. Commerce is showing promise growing sales and bringing efficiencies in capability to fulfill more ecommerce sales orders at higher margins.
Remember, we look at e-commerce , as a flywheel to help us maximize margin and balance our plant in.
In 2021, we actually passed on some demand because it didn't help us help us achieve one or both of those objectives.
We're learning more about e-commerce , and I'm glad we jumped in with both feet.
Regarding bolt on M&A, we are pleased with the contributions of our two acquisitions.
They both had a positive impact to our bottom line and strengthened our foothold in the rotational molded space.
Horizon, one strategy as it relates to M&A is playing out as expected.
We are executing small bolt ons that gives us capability technologies and market access.
The smaller deals are helping us sharpen our skills and hone our capabilities and negotiating executing and integrating acquisitions.
We continue to use horizon, one M&A to help us build our capability into thoroughly prepare our playbooks and processes to ensure the successful execution of horizon two transactions in the coming years.
While we continue to focus on bolt on acquisitions in our material handling segment. We're also exploring smart add ons in the distribution segment as well.
Stay tuned as we continue to execute on our M&A strategy.
Slide 10 covers the four strategic pillars that support our <unk> vision for horizon one.
While all the pillars are critical today I will focus on the rightmost pillar. The one that covers our high performing culture, we look forward.
The key difference maker in Myers transformation has been our overhaul on talent and capability.
To be clear indirect Myers is not a situation where you have an under managed small company that brings in a new CEO in two to three managers and remains an under managed small company that's not what we have going on here.
Over the last two years I've worked my team has worked to bringing approximately 30 new leaders in the buyers. These.
These new additions have fit well with the existing talented leaders already in place.
These new leaders are being added to all functions at all levels of the organization.
Most of these leaders we know we've worked with before we know what we're getting and the recruits know what they're getting.
Going with this approach recruiting who we know our hit rate and our success rate is higher.
Having more success and fewer Mrs.
We found success in recruiting recent retirees from large established firms who have more to go.
I want to help transform a public company and maybe were retired two early by their employer. This is a trend we found and we're capitalizing on it.
In addition, we are having success with early and mid career leaders, who want to be a part of a public company that is going to double triple or even quadruple in size.
For the right person this growth mindset is more fulfilling than being at a large cap firms that might be more focused on optimizing.
We have a flat organization and entrepreneurial culture in these new leaders typically have more ability to have a greater impact and make more meaningful decisions in at their prior employer.
Working.
We target low <unk>.
Highly capable women and men, who have been developed and trained for a decade or two or three at world class Global multinationals.
These leaders know what great looks like and can bring it to Myers.
They buy into the vision and have a passion.
To turn this company into something remarkable.
I know, it's working because the friends of these new recruits are now asking how they can join Myers and be a part of something exciting.
I think it's the clear opportunity of a lifetime and I speak in detail about this in my shareholder letter in the annual report.
When I compare myers to other small caps or other small mid caps, what we have that they often don't is the dozens of world class highly capable leaders.
It's making a difference in every aspect of Myers, our performance is improving and were able to exploit opportunities more quickly and thoroughly.
The manage issues and problems more successfully.
As an example, when I look at the world conflicts that will be prominent in 2022, and the macro trends out there.
Comfort that our experienced team and procurement.
In commercial and supply chain and in operations will navigate the challenges and we'll find solutions.
We saw this in 2021 with the Texas freeze.
We navigated this potential calamity with the level of success that would not have been possible with the Myers of a few years ago.
I believe we will navigate the issues that 2022 throws at us with the same poised and success.
It is all about the people and I believe this is becoming the key differentiator with Myers.
As I wrap up my prepared remarks. Please remember this point, we expect 2022 to show the results of all the reinvention all of the improvement in all of the hard work that's been done at Myers, and 2020, and 2021 and I expect it to be a great year and the beginning of many more to come.
With that we'll now turn the call over for questions. Operator, if you would open the line.
Thank you we will now start our Q&A session.
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Okay.
And now our first question comes from Lance Vitanza from Cowen. Please go ahead. Your line is open.
Hi, guys. Thanks for taking the questions congratulations on a quarter.
Actually I have a couple if that's okay and maybe Mike I wanted to start with you on the Elkhart.
And trilogy acquisitions, I think you mentioned in the release.
That those both of those acquisitions have been going basically better than fed expectations and I was wondering if you could elaborate on what exactly that means and what what sort of are the metrics are they kind of qualitative or quantitative but in what way are those sort of performing better than you guys had hoped and then I'll just jump a couple of more.
Granular questions.
Yes sure for sure so on the on the qualitative the cultures are mentioned really well.
We were a Midwestern focused company, we've acquired companies that have similar values and Thats really what we see when we go to acquire companies do they match us on in terms of our beliefs and values and because that really frees up.
<unk> everything else go more smoothly.
Because that box is checked well with elkhart as well as with trilogy, the synergies that rolled through.
Particularly in Elkhart, the synergies have exceeded what we anticipated.
On the growth side as well as the cost side, we do have scale on the resin purchasing piece, which allows us to get some synergies on the cost side, but also just optimizing the grid the plant taking the technology the capabilities that a lot of these.
Roto Molders half and then rolling that across our base business has proven to be quite successful.
So.
The degree of difficulty has been very manageable and the results and output has been greater than we expected a qualitative and quantitative with both of those.
Thanks, Mike and then maybe settle for a couple of questions for you if I could the first both of these are on the outlook for 2022.
On the revenue side it looks like if I adjust for trilogy, you are expecting mid to high single digit organic sales growth in 2022 is that right.
In any case could you could you.
Talk a little bit about how much of the sales growth that you are guiding to how much of that do you expect will be volume driven or or is that mostly just a reflection of the inflation based price increases that presumably you're trying to pass on asbestos you Kat.
Yes, yes, good morning plants, great. Great question. So as you think about that top line guidance that we provided to your point high single digit to low double digit approximately a quarter of that is driven by trilogy for the remaining part of that essentially the way to think about it is of our overall guidance more than half is inflationary driven by.
Price and then the balance of that would be the volume mix piece of it.
Okay. Thanks, and then.
Lastly for me on the margin Bryan So and so I think you said 200 basis points of margin expansion in 2022 was that on the adjusted gross margin line or was that on the adjusted operating profit line.
The adjusted gross margin line.
Great and then so to what extent is that I.
I mean, thats, a relatively optimistic outlook at least.
From my standpoint.
And I'm wondering is it based to some extent on a presumption that just inflationary pressures supply chain issues did these just begin to just generally is is that kind of why you see this for work.
I guess I'm, just trying to understand the sensitivity to potentially being wrong on that because we wind up with supply chain pressures and inflationary pressures persisted throughout the course of the year.
Yeah, Let me start here so price is a key driver of our expectation around margin expansion.
Youll recall that the margin compression that we saw on the material handling side in 2021 so.
We would expect a lot of that to come back on the material handling piece of that.
And so as you think about price being a key driver distribution, we'll see some growth keep in mind they had a strong 2021.
Part of our consideration here is my commentary around our strong start to Q1 as well we're seeing a strong start to the quarter. We've got a good mix of business with the seed business results and the expectations. We have there in the quarter and so pricing is a key driver of that I think as you kind of think about the cost component of that.
Mike's commentary around our ability to price the capabilities that we've built on pricing give us comfort that as we continue to see other inflationary factors that we will take proactive actions in order to come back that as we go throughout the year.
If I can build on that I mean, you look at modern historically I can't I would argue that it was the good products. Good company good people, but under managed.
So we're arguably starting from a pretty low a low base. So what we're talking about doing whether its 15% EBITDA guidance that tunnel is given on the 200 basis points and gross profit.
It's achievable we brought in some world class folks on the pricing and pricing excellence side.
<unk> procurement and cost management side, we revitalized sales org. So now they can actually sell the value of product screen rather than going to a.
Our cost base formula.
I'm optimistic.
There is some uncertainty on the back end due to the war however, what's arnold's given in guidance we stand behind.
Thanks, guys. Thanks very much appreciate it.
Thank you I appreciate it.
Thank you so much for my question.
Our next question comes from Ken <unk> from Keybanc Capital markets. Please go ahead. Your line is open.
Hey, good morning, everybody.
Good morning morning.
Good morning, it's Ken Newman on for Steve Barger.
I wanted to follow up on the margin question.
I'm curious if you can just talk to the guard rails for margins are implied to be guidance, because it and at the mid points.
It implies incremental margins in the mid 20% range.
And I'm curious just how you think about what risks there are that.
Maybe potentially get pushed and pushed the rise given the higher energy and rising prices that we're seeing in today's environment.
So I appreciate I appreciate the question this is Mike.
Just again, echoing what I, just mentioned to Lance as well there is theres a lot of upside on either side of price or cost management, yes. There is some uncertainty with.
With the issues, we're seeing rollout in the macro environment.
What I'll do is I'll, let me hand, it over to final if you can elaborate a little bit more I want to be sure I don't repeat versus what we just said the plan.
Yeah sure so to Mike's point, we do have a number of factors, obviously that come into play within our guidance, obviously underlying end market demand would impact the top line piece of it the price cost relationship as we continue to move throughout the year would impact both top and bottom line and then once again the strength that we are seeing as we start off fiscal year 'twenty to get there.
Comfort as we start the new year off on a strong foot here.
Right.
Just as a follow up to that I mean can you remind us.
What is what is typically the lag.
Any thoughts in terms of catching up on price cost when you put in that when you increase pricing actions today.
I would say generally speaking about a quarter with experience.
Give or take within the portfolio that's right that's right, but right now I mean, we're seeing if you look at polyethylene polypropylene.
That big ramp that occurred last year, we're seeing some decline or flattening now given there's look there's uncertainty in the back half of the year due to some macro and some macro trends.
But thats why were.
Pretty confident in our margin expansion as we were pushing price throughout the year and we just couldn't catch up we're able to we're starting to see.
That trend change in fourth quarter, and we're seeing it continue through and that's what we're projecting is that will continue through 2022.
And quite frankly, as I talk about 2023 and beyond our ability to hold and expand.
That margin is there and that's the reason I continue to read reiterate those horizon one target.
And maybe just one other thought to that keep in mind last year, we saw almost no incremental benefit of pricing actions in Q1. So once again as you think about the lapping impact.
There'll be.
Fairly large on the front half of the year.
Right Okay.
Yeah.
Hi.
Just a few more for me I'm curious if you could just build out can you talk a little bit about healthy demand.
In the first quarter to date I know you mentioned the <unk>.
Cid business seeing some strong orders, maybe can you help us build that comment out a little bit.
How are orders if you can quantify it to a certain extent just trending so far and what are you hearing from your customers about their inventory needs.
Yes, I'll give a high level and then Donald can provide even more data right.
Right now the question is can we supply demand, but demand from in almost all markets strong demand on our France is strong.
Across the board, whether it's auto aftermarket in distribution, whether it's fuel containers, whether it's <unk> whether it's.
Tanks from our auto business.
I'll tell you Ken is just demand is robust demand is healthy.
I don't see it back now most of these products that we that we have in front of us for the next year or two I think there is going to continue to be uptake.
Tom can maybe quantify that a bit more of a the guidance we gave on high single to low double.
That's about that's about right.
Numbers, we have at this point.
Mike That's right I mean, I think just once again front half loaded versus back half loaded recall once again <unk> was bought at the end of July last year. So look at seven additional months of that in the front half of this year.
Reising actions once again benefited us in Q3 and Q4 more so last year than this year, so once and that lapping impact.
And.
That's essentially the key factors there.
Yes.
Just one more from me.
Obviously, you've been very acquisitive this year.
Do you feel that you can still be maintained that acquisitive nature in coming years, but maybe just talk a little bit about to the M&A pipeline.
Are you seeing coming across your desk from a multiple and target size perspective.
Does all of the uncertainty in the macro environment make it harder to do deals.
Or if not why is that.
Yes, what I will tell you is so up until let's say the Ukraine invasion in the reset there lets say the retail over the past couple of months.
Just in the overall stock market in general.
I think.
We were more at the top of the cycle itself things are a bit expensive.
I want to be real careful that we don't overpay.
Types of companies. We're looking at is where we are buying a capability or technology or market. Access then we can leverage across all of our business and thats true whether thats on the distribution side or the material handling side.
What we're doing as we stated in our strategy is buying.
Typically private companies.
That are in that size of the bolt on range $50 million to 100 $150 million in revenue.
We're finding that most of the time, there's a bit of a lift to do with those companies.
But we're able to buy them for.
At attractive price.
Work on the pricing work on the commercial which is what we know how to do.
And they turn out to be really really positive from a return standpoint.
All that being said is we're going through these iterations as I mentioned in my comments.
To bring in bolt on capabilities that.
That we can digest given our size today, but we're also really cognizant of building processes and a playbook and discipline around how we acquire how we integrate how we get the synergies so that when it's time to click into those horizon, two deals which are more enterprise level that we're ready to go and.
We have a good plan and we get the synergies as aggressively as we have been able to get from Elkhart, primarily and trilogy secondarily. So.
I think the markets. There. The issue is if prices were getting pretty frothy and we have a lot of discipline I want our shareholders to understand that and we have a lot of discipline, we're not going to overpay, we've got a lot of organic opportunities and capital investment opportunities as well. So we've got a number of levers to create shareholder value, we're going to continue to work those and be smart about it.
<unk> any points to add.
That's great.
So that's a good question Ken that's a good question.
I think the prices will come down just a touch here over the next little bit with this uncertainty and Thats, a great opportunity for us with a great balance sheet.
And having a few deals under our belt to go continue to acquire and hopefully acquire even at more favorable terms than maybe what we could have six months ago.
Yes, no that makes sense.
Thanks for the color.
Thank you.
Thank you so much concern question at this time there are no further questions and I would like to thank everybody for joining today's call. You may now disconnect your line.
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