Q2 2024 Myers Industries Inc Earnings Call
Ladies and gentlemen, welcome to the Myers Industries Q2 2024 earnings call. My name is Kenneth and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad.
I will now hand you over to your host, Meghan Beringer Zipkin. Please go ahead.
Megan Beringer: Thank you, Kenneth. Good morning, everyone, and thank you for joining Meijer's conference call to review 2024 second quarter results. I'm Megan Beringer, Senior Director of Investor Relations at Meijer's Industries.
Meghan Beringer: I'm Meghan Beringer, Senior Director of Investor Relations at Myers Industries. Earlier this morning, we issued a press release outlining our financial results for the second quarter of 2024. We've also posted a presentation to accompany today's prepared remarks, which is available under the Investor Relations tab at www.myersindustries.com. After the prepared remarks, we will host a question and answer session. 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. Also, please be advised that certain non-GAAP financial measures, such as adjusted growth profit, adjusted operating income, adjusted EBITDA, and adjusted EPS, may be discussed on this call.
Speaker Change: Joining me today is Mike McGaugh, our President and Chief Executive Officer, and Grant Fitz, Executive Vice President and Chief Financial Officer.
Meghan Beringer: Our second quarter results were bolstered by the solid performance of our recently acquired Signature Systems business. These results reflect the company's first full quarter with Signature Systems.
Speaker Change: Earlier this morning, we issued a press release outlining our financial results for the second quarter of 2024. We have also posted a presentation to accompany today's prepared remarks, which is available under the Investor Relations tab at www.myersindustries.com.
Speaker Change: This call is also being webcasted on our website and will be archived along with the transcript of the call shortly after this event. After the prepared remarks, we will host the question and answer session.
Speaker Change: Please turn to Slide 2 of the presentation for Safe Harbor Disclosures.
Speaker Change: 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 Security Litigation Reform Act of 1995.
Speaker Change: 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-Q filings.
Speaker Change: Good morning everyone and welcome to our second quarter 2024 earnings call. I will begin today with a review of the performance highlights from the second quarter.
Speaker Change: This business is benefiting from worldwide investments in infrastructure and enabled Myers to outpace the demand headwinds in the recreational vehicle, marine, and automotive aftermarket end markets.
Meghan Beringer: As I highlighted at our Investor Day earlier this spring, we anticipated demand to be choppy through this year. Indeed, we are seeing continued soft demand in our sales to the recreational vehicle, marine, and automotive aftermarket end markets. 2024 is showing signs of cooling demand. We are growing our industrial box business to help mitigate the volume decline of seed going forward. In light of this softer demand, we continue to take actions to reduce costs and increase productivity across the company.
Speaker Change: As I highlighted at our Investor Day earlier this spring, we anticipated demand to be choppy through this year.
Speaker Change: As I said then, we're not out of the woods yet. Indeed, we are seeing continued soft demand in our sales to the recreational vehicle, marine, and automotive aftermarket end markets.
Speaker Change: In our food and beverage end market, we know that the seed box business is also cyclical.
Speaker Change: And a lot of this software demand, we continue to take actions to reduce costs and increase productivity across the company.
Speaker Change: These actions include the consolidation of three distribution centers in our Myers Tire Supply business, as well as today's announcement of the consolidation of our Atlantic Iowa Rotational Molding Facility into our other rotational molding facilities in Indiana.
Meghan Beringer: We are able to reduce our footprint and reduce our costs due to the productivity gains that I've spoken about in past calls. We expect these closures to be completed in 2025, and the resulting annual cost savings of approximately $5 million to be fully realized in 2025 as well. With these actions, we are on track to deliver the $79 million in annualized cost savings we've committed to. These savings will impact the income statement in 2025. In addition, we are also on track to deliver the $8 million in annualized cost synergies in 2025 in connection with our acquisition of Signature Systems. We gained experience and scale through smaller bolt-on acquisitions.
Speaker Change: We expect these closures to be completed in 2025 and the resulting annual cost savings of approximately $5 million to be fully realized in 2025 as well.
Speaker Change: With these actions, we are on track to deliver the $7 to $9 million in annualized cost savings we have committed. These savings will impact the income statement in 2025.
Speaker Change: In addition, we are also on track to deliver the $8 million in annualized cost synergies in 2025 in connection with our acquisition of Signature Systems. Grant will speak to our cost savings and synergy progress in more detail in his segment.
Speaker Change: But before I hand the call over to Grant, I'd like to speak a few moments reviewing our strategy that continues to guide our decisions and actions as we transform Myers Industries.
Speaker Change: We gained experience and scale through smaller bolt-on acquisitions, and as a result, we were well positioned to announce our acquisition of Signature Systems, largely accomplishing our Horizon One goals by our 2023 target date.
Meghan Beringer: And as a result, we were well positioned to announce our acquisition of Signature Systems, largely accomplishing our Horizon One goals by our 2023 target date. As we enter the second horizon of our journey, we are building on the fundamentals established in Horizon One to transform Myers into a stronger, simpler, high-margin, growth-oriented company. Slides five and six of today's presentation are a reminder of our Horizon 2 strategic imperatives in the resulting strategic lens.
Speaker Change: We believe this strategy and our approach to acquiring and building businesses that branded products, higher barriers to entry, clear long-term growth tailwinds, and significant commonalities with our four power brands will unlock meaningful value creation for Myers Industries long-term.
Speaker Change: Slides 5 and 6 of today's presentation are a reminder of our Horizon 2 Strategic Comparatives in the resulting Strategic Lens.
Meghan Beringer: This includes a focus on growing the storage handling and protection portfolio as well as maximizing the value of our engineered solutions and automotive aftermarket portfolios. In the engineering solutions and automotive aftermarket portfolios, we are focused on maximizing value by driving further improvements in efficiency, reducing our cost, maximizing cash flow, while delivering excellent value to our customers. In summary, we believe our second quarter actions and results demonstrate meaningful progress on our path to transform our company, and we are confident that the strategy we are implementing will drive long-term shareholder value creation.
Speaker Change: This includes a focus on growing the storage handling and protection portfolio, as well as a focus on maximizing the value of our engineered solutions and automotive aftermarket portfolios.
Speaker Change: Notably, we are continuing to benefit from strong growth at Signature Systems. As well, we are realizing gains in productivity and taking cost reduction actions in our engineered solutions and automotive aftermarket portfolios.
Speaker Change: Within the Storage Handling and Protection portfolio, we have a long runway for growth in the infrastructure and military end markets, and we continue to invest capital and innovation in this portfolio.
Speaker Change: These ongoing initiatives, combined with improved growth and profitability across the portfolio, and continued contribution from our four power brands listed on slide 8.
Speaker Change: Now, I will turn the call over to Grant for a detailed review of our second quarter financial results and updates to our outlook.
Unknown Speaker: Thank you, Mike. I would like to begin on slide 9 to go over the full summary of the second quarter 2024 financial results. SG&A as a percentage of sales decreased to 23.5% compared with 25.8% in the first quarter of 2024 and 25.1% in the same period last year. Excluding contributions from signature systems, SG&A expenses declined 18% year-over-year, and SG&A as a percentage of sales would have been 22.8%, driven in part by lower incentive compensation accruals, reflecting Myers' full-year outlook and other cost-savings initiatives.
Speaker Change: with the increase primarily driven by the signature systems acquisition.
Grant Fitz: Largely driven by the signature systems acquisition and partially offset by an adjusted gross profit decline in our legacy business.
Grant Fitz: Selling general and administrative expenses decreased $1.8 million sequentially, or 3.4%, and $0.7 million year-over-year, or 1.3%, to $51.7 million.
Unknown Speaker: Adjusted operating income in the second quarter increased 51.5% year over year to $28.8 million as compared to $19 million in Q2 of 2023. Second quarter adjusted EBITDA was $38.9 million, which increased 57.4% compared to the prior year quarter, again largely driven by the addition of signature systems.
Grant Fitz: Adjusted operating income in the second quarter increased 51.5% year-over-year to $28.8 million as compared to $19 million in Q2 of 2023.
Unknown Speaker: Adjusted EBITDA margin increased 580 basis points to 17.7% from 11.9% in the second quarter of last year. And, as Mike mentioned, this is one of our strongest quarters of adjusted EBITDA margin, adjusted EBITDA performance in recent history. For an overview of each segment's performance, please turn to slide 10.
Grant Fitz: Adjusted EBITDA margin increased 580 basis points to 17.7% from 11.9% in the second quarter of last year. And as Mike mentioned, this is one of our strongest quarters of adjusted EBITDA margin, adjusted EBITDA performance in recent history.
Grant Fitz: Adjusted earnings per share was $0.39 compared to $0.35 in Q2 of 2023, with the variance compared to the second quarter of last year, driven by the improvement in sales and operating margins.
Grant Fitz: Offset by increased interest expense related to the term loan, which was used to finance our acquisition of Signature Systems.
Grant Fitz: For an overview of each segment's performance, please turn to slide 10.
Grant Fitz: For the material handling segment, net sales increased $22.7 million or 15.9% compared to the prior year.
Grant Fitz: Net sales for the distribution segment decreased $10.9 million, or 16.7% year-over-year, to $54.3 million, driven by lower sales volumes and pricing.
Grant Fitz: As Mike prefaced earlier, we are on our way to achieve these initiatives with the recent cost reductions and the efficiency improvements, as well as the rationalization of our manufacturing footprint.
Unknown Speaker: We are able to reduce our footprint and reduce our cost structure due to the productivity gains we've achieved. We expect these closures to be completed in 2025 and will deliver approximately $5 million in annualized cost savings. On slide 12, you will see that we are on plan with our signature integration and will continue to benefit from productivity and operational improvements, material savings, and other initiatives. Additionally, we are revising our four-year guidance to reflect the slower demand and challenges within certain end markets and the broader macroeconomic conditions which we discussed earlier today.
Speaker Change: We are able to reduce our footprint and reduce our cost structure due to the productivity gains we've achieved. We expect these closures to be completed in 2025 and will deliver approximately $5 million in annualized cost savings.
Speaker Change: Through these combined initiatives, we will continue our dedicated efforts to self-help the business, which in turn will create a new, simplified Myers that is advantageously positioned for growth in the coming years.
Speaker Change: Turning to slide 13.
Speaker Change: Taking on debt is necessary to grow through our acquisitions. However, as you will see later in the deck, we are well-positioned to pay down the debt with a goal to decrease our net leverage ratio under the credit agreement to below two times within two years of the closing of signature.
Speaker Change: We are focused on reducing our debt following the recent signature systems acquisition and we are targeting to reach a leverage ratio of under two times within two years of the closing of signature systems.
Speaker Change: We also want to maintain a strong balance sheet and ample liquidity for our business.
Speaker Change: Finally, we will evaluate the most beneficial uses of cash.
Speaker Change: to create value through additional acquisitions with targets similar to Signature, with clear commonalities to our four power brands, or potentially through share buybacks, depending on the timing of potential acquisition opportunities and when debt has been paid down to more historic levels.
Speaker Change: Now please turn to slide 15 for an update on our outlook for the fiscal year 2024.
Speaker Change: We are revising our four-year guidance to reflect the slower demand and challenges within certain end markets and the broader macroeconomic conditions, which we discussed earlier today.
Unknown Speaker: Our new guidance ranges are net sales growth of 5 to 10 percent, net income per diluted share in the range of 76 cents to 91 cents, adjusted earnings per diluted share in the range of $1.05 to $1.20, capital expenditures in the range of $30 million to $35 million, and an effective tax rate of approximately 26 percent. The diamond track allows this removal in a more economical and efficient manner versus traditional gravel.
Speaker Change: Our new guidance ranges are net sales growth of 5-10%, net income per diluted share in the range of $0.76 to $0.91.
Speaker Change: Adjusted earnings per diluted share in the range of $1.05 to $1.20 Capital expenditures in the range of $30 million to $35 million Effective tax rate to approximately 26%
Speaker Change: Turning to slide 16, I want to highlight some of the near-term growth opportunities that we foresee during the second half of the year that we are quite excited about.
Speaker Change: Signature Systems will continue to benefit from long-term infrastructure improvement projects.
Speaker Change: The Diamond Track allows this removal in a more economical and efficient manner versus traditional gravel. This is another example of Myers' ability to convert markets from traditional materials to reusable composites that are more economical and environmentally friendly.
Unknown Speaker: This is another example of Myers' ability to convert markets from traditional materials to reusable composites that are more economical and environmentally friendly. Our military products serve as lightweight alternatives to most existing ammo casings, and we have successfully aligned our operational capabilities to realize this opportunity. We are pleased that these SEPTA products meet virtually all virtual qualifications, or vital qualifications, including NATO and the U.S. Department of Defense, and we've secured recent contract wins in the United States, and we are also engaged in award processes for additional potential contract wins in Europe.
Speaker Change: increasing sales of military products.
Speaker Change: Our military products serve as lightweight alternatives to most existing ammo casings, and we have successfully aligned our operational capabilities to realize this opportunity.
Unknown Speaker: We are estimating that the SEPTA military business will grow to approximately $40 million in revenue in 2025, compared to only $10 million in military revenue in 2023. Lastly, and just a note on the status of the current storm season, as questions start to come up at this time of year, particularly given the recent Hurricane Beryl, we are seeing an uptick in our five gallon gas can sales from an early start to the hurricane season, which resulted in significant power outages in Houston in July. We will continue to monitor the potential impacts from what is expected to be a strong storm season this year. Now, I will turn the call back to Mike for some closing comments.
Speaker Change: We are seeing an uptick in our 5-gallon gas can sales from an early start to the hurricane season, which resulted in significant power outages in Houston in July . We will continue to monitor the potential impacts from what is expected to be a strong storm season this year.
Speaker Change: Now, I will turn the call back to Mike for some closing comments.
Mike: Thanks, Grant. Please turn to slide 18.
Mike: As I conclude my remarks, I'd like to reinforce how we are moving forward in Horizon 2 of our strategy. First, throughout the quarter, we took action to improve cost and efficiency to maximize value in the engineering solutions and automotive aftermarket portfolios. This is a component of the $9 million in total annual cost reductions highlighted by Grant in his talk. Second, we are growing the branded product in the Storage Handling and Protection Portfolio.
Mike: As I conclude my remarks, I'd like to reinforce how we are moving forward in Horizon 2 of our strategy.
Mike: First, throughout the quarter, we took action to improve cost and efficiency to maximize value in the engineered solutions and automotive aftermarket portfolios.
Mike: Second, we are growing the branded products.
Mike: We have highlighted growth projects, all largely plays where sustainable plastic products replace another material. This is being driven across all four of our power brands, Buckhorn, Acro Mills, Scepter, and Signature Systems. Third, our continued work to institutionalize our commercial excellence and operational excellence gains from Horizon One continues to provide benefits in terms of our EBITDA margin and dollars.
Mike: We have highlighted growth projects, all largely placed where sustainable plastic products replace another material.
Mike: Two good examples are Scepter's Growth Runway in Military Applications and Signature's Growth Runway in Infrastructure.
Speaker Change: With that, I'd like to turn the call over to the operator for questions.
Unknown Speaker: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to withdraw your question. When preparing to ask your question, please ensure your phone is unmuted locally.
Speaker Change: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star-fold by 1 on your telephone keypad now. If you change your mind, please press star-fold by 2 to withdraw your question. When preparing to ask your question, please ensure your phone is unmuted locally.
Mike: Good morning, this is Jacob Moore filling in for Christian today. Thanks for taking the questions.
Unknown Speaker: Yeah, thanks, Jacob. We did have, certainly had some improvement in the margin from the signature systems acquisition. So that was something that we looked at as a very, you know, positive thing for the business and really gets to the hydraulics of why we thought that this was such a good acquisition for Myers as it really effectively starts to create the value that our four power brands can contribute. So I would say, in general, we continue to see strong margins, but on a normalized basis, we will have some ups and downs with mix.
Unknown Speaker: We did have some favorable mix this quarter, but we also had some offset with some pricing and volume, which impacted the margins as well. And so I would say, you know, the way we see it, and we're probably a little bit more conservative on this, you know, we would see some slight decline in gross margin in the second half of the year, which is what we're projecting. But that's really driven by just, in general, some conservativeness that I think we've taken as we started to look at some of these trends in some of these key end markets that seem to Yeah, Jacob, I just appreciate that question.
Speaker Change: And so I would say, you know, the way we see it, and we're probably a little bit more considerate on this, you know, we would see some slight decline in gross margin, you know, in the second half of the year is what we're projecting. But that's really driven by just in general, what I would say is some conservativeness that I think we've taken as we started to look at some of these trends in some of these key end markets that seem to be creating some headwinds for us right now. Yeah, Jacob, just appreciate that question. On that slide 10, where we break out the results by segment, and you have material handling going from 21.
Unknown Speaker: If you look at slide 10, where we break out the results by segment, and you have material handling going from 21%, basically up to 25%, that should be a good metric. We believe this storage, handling, and protection portfolio is 80% of the profit runway of the company. Those are all differentiated brands, leading brands, there are good competitive moats, there's a good growth runway. And so, directionally, I think that your question was a good one.
Jacob Moore: percent, basically up to 25%.
Speaker Change: That should be a good metric. We believe that storage handling and protection portfolio...
Speaker Change: Those are all differentiated brands, leading brands, there's good competitive moats, there's good growth runway, and so directionally I think that your question was a good one and that directionally the quality of the business should sustain there.
Unknown Speaker: And that's that directionally, the quality of the business should should should sustain there. Remember, also, in the material handling piece, you've got the engineered solutions business, which is largely a contra manufacturing business that has even dot margins, you know, as we've discussed before, 10 12%. So diluted a bit. But really, that's why we are focused on driving the storage handling protection portfolio is the quality of the margins. And, again, I think that that should be noted going forward as where our watermarks will be.
Mike: Remember also in the material handling piece, you've got the engineered solutions business.
Mike: which is largely a contract manufacturing business that has even dot margins you know as we've discussed before 10-12% so it dilutes it a bit
Mike: So really, that's why we are focused on driving the storage handling protection portfolio is the quality of the margins. And again, I think that that should be
Mike: Noted going forward is where our watermarks will be.
Unknown Speaker: Understand. That's thank you for that. That's a good color. And I think it leads well into my next one, which is the same question, but
Speaker Change: Can you provide any latest thoughts on that segment and what you're seeing in that business? Are mid-single-digit percent margins in distribution sustainable, given the volatility we've seen in the past few quarters?
Unknown Speaker: Yeah, so we reported a 7% EBITDA margin in that distribution segment. As we've discussed before, we have had aspirations for higher margins in that business, either high single digits or even low double digits. What we found over the last couple quarters is the retail tire business and the resulting tire supply business, which is where we are, are off by about 10% year over year. When that happens, you lose some operating leverage, and so you're going to unwind a few hundred basis points on your EBITDA delivery versus your expectations. That 7%, give or take, is, generally, a good number going forward.
Speaker Change: As we've discussed before, we have had aspirations for higher margins in that business, either high single digits or even low double digits.
Unknown Speaker: And again, like I said, as you've got in that space, tire repair, 15% year over year, which is the case with that Myers Tire Supply business. So we're trying to combat it by streamlining. We talked about the ERP work we've done over the last six to nine months. Because we got on the same ERP system, we were actually able to reduce three distribution centers going from eight down to five.
Mike: Right now, anything that's impacted by high interest rates...
Speaker Change: Demand that's impacted by high interest rates or demand that's impacted by inflation.
Speaker Change: And so right now, your consumer is not buying tires at the same replacement rate.
Speaker Change: as we would have expected or hoped a year ago. As a result, the wheel weights, tire valves, tire pressure sensors that we sell are also down. And so what you see in that 7% is just an unwinding of operating leverage when your revenues are off.
Speaker Change: You know, 15% year over year, which is the case with that Myers Tire Supply business. So we're trying to combat it by streamlining. We talked about the ERP work we've done over the last six to nine months.
Speaker Change: Because we got on the same ERP system, we were actually able to reduce three distribution centers going from eight down to five.
Grant Fitz: That simplifies the business, allows us to take costs out, and ultimately we think that will be reflected in the margins. But 7% Jacob is probably a fair number going forward. Grant, what would you say? Yeah, I would say so. I think the other important part of these consolidation distribution centers
Speaker Change: But I do think that we, you know, as Mike said, we weren't thinking that this business might be, you know, able to improve the overall margin. We just see with some of the headwinds right now that that's probably not likely. And so I do think that that range of, you know, 7%.
Unknown Speaker: Got it. Thank you. Thank you. Just a couple more for me.
Unknown Speaker: Can you speak to any productivity gains that you've made in either segment that enabled the footprint consolidation? And then maybe a related question to that is, with the defense business ramping up, do you have available capacity? Should we see an accelerated ramp in orders from the new sector products?
Unknown Speaker: Unknown Speaker
Unknown Speaker: Yeah, so hey, Jacob, you know, this is something I've talked about since I arrived and been here for the last four, four and a half years: all this operational excellence. I talked about the sales and operations planning processes that we brought in the sales and operations planning software and systems and then all the personnel we brought in from some of these large-capital companies that really help us schedule our plants better, but we are able to get more units out of each machine based upon how we schedule it, how we operate it, and ultimately, our OEE is higher, and the output of each plant is higher, and so we're able to do So, Grant? Yeah, I just would add some additional information to that.
Speaker Change: Sales and Operations Planning, Software and Systems, and then all the personnel we brought in from some of these large cap companies that really help us schedule our plants better.
Speaker Change: operate our plants better and as a result I talked about the hidden factor we actually are unleashing and finding
Speaker Change: It's what you're seeing in these consolidations is a proof point of all the.
Speaker Change: The SNOP and Operational Excellence work we've been doing in 2021, 2022, 2023. As it relates to the military, same story there. We actually have added some capacity.
Speaker Change: But we were able to get more units out of each machine based upon how we schedule it, how we operate it, and ultimately our OEE is higher, and the output of each plant is higher, and so we're able to do more.
Speaker Change: equipment and manufacturing processes.
Unknown Speaker: Thank you, that's helpful. I think doing more with less is a common theme in the military, so you're on the right track there. Last one from me, I'd like to ask about the capacity additions and signatures specifically. When do you think those additions will be fully operational, and how soon should we expect to see an associated revenue ramp as a result?
Unknown Speaker: I'll tell you what I can tell you, recognizing that it is confidential information. So we've announced a capacity addition in 2024. We have an additional capacity addition that will come on in 2025. The directional goal for this business when we acquired it, and Jeff Condino, who is the CEO of this business, and his team, their directional goal is to double the business.
Speaker Change: The directional goal for this business when we acquired it and Jeff Condino who is the CEO of this business and his team, their directional goal is to double the business.
Speaker Change: I would just say when we acquired Signature, we said we expected that business to grow at least 10% annually, and I think we're on a good path for that. In general, and it's very similar to the question you asked about military, we like to ramp up our capacity as the demand is there, and so there is some timing element of this, but we certainly have opportunities.
Speaker Change: to meet the objectives that Mike outlined.
Unknown Speaker: All right. Thank you, gentlemen. It's been a good call, and thanks for taking our questions.
Unknown Speaker: Thank you. We have our next question from Anna C. Jolly from Gatley & Company.
Unknown Speaker: Yeah, Carolina. It's going well. On the soft side, the qualitative side, the cultures are meshing well. We really like the quality of the signature team. And actually, it's been a nice add. The talent in the signature team, I believe, will be complementary to the rest of Myers.
Unknown Speaker: So that's a win. On the quantitative piece, the financials and the delivery are coming through as we had anticipated. The integration itself, the cost-out initiatives are, again, on track, as Grant had mentioned, so that we have $8 million of synergies in 2025. That number still holds. And so, overall, Carolina, we're quite pleased with the acquisition, its performance, qualitative and quantitative. Grant, anything to add?
Speaker Change: I think it's going really well. You know, the team's a strong team. We, you know, we've been able to supplement on both sides where we've had some good learnings on some of the operational processes.
Speaker Change: to implement some performance improvements at Signature. But also, Signature's had some areas where they've had some excellence, centers of excellence type of ideas that we've been able to implement in some of our other manufacturing processes. So it's been a good opportunity to just share knowledge and really drive some of the synergies that we had identified we felt we could achieve with the acquisition.
Grant: Perfect, thanks. And then Grant, can you just help me? understand better on page 13 the kind of difference in cash flow conversion year over year.
Speaker Change: Perfect, thanks. And then Grant, can you just help me...
Grant Fitz: better understand on page 13 kind of the difference in cash flow conversion year over year.
Grant Fitz: 60% cash flow conversion business continuing, you know, we have, that's been kind of historically where we've been at, we don't show a specific cash flow conversion chart in our
Speaker Change: in our earnings presentations, but it is a good cash flow conversion business.
Grant Fitz: And so we do think that, you know, that may continue to improve as we get some of these improvements in place with some of the costs and things of that nature. But overall, you know, we see that with the signature acquisition.
Angelina: over time. Additionally, Signature does bring on a little bit more inventory than what we have in some of our other operations, but their cash conversion is really quite good. So we think that essentially offsets that. And so we should, over time, I think, Angelina,
Angelina: continue to, or Carolina, continue to move forward with, you know, what we've seen traditionally on a cash conversion for Myers.
Angelina: [inaudible]
Grant Fitz: and specific to the distribution segment it seems as if some of the
Unknown Speaker: Uh, we had a... We made a strategic move to reorient the sales force, and we did that in the back half of last year. We took our sales personnel, and we focused them on in-market retail, separate from commercial, separate from retread, et cetera. That change and conducting that change with, you know, 100 plus sales reps, longer term, I think those are the right causes to have a focused, focused sales organization based on in-market retail. What we're seeing is us coming back and gaining share, and I expect that to happen over the next year. So that hopefully answers your question.
Speaker Change: We made a strategic move to reorient the sales force, and we did that the back half of last year. We took our sales personnel, we focused them on in-market
Angelina: It did not deliver the gains as fast as I would have expected, and in fact in some instances it took us a little bit backwards.
Angelina: Longer term, I think those are the right causes to have a focused sales organization based on in-market.
Angelina: The market is also down 8-10% in our space of wheel weights, tire valves, tire pressure sensors.
Angelina: We
Angelina: What we're doing now is we're going back and addressing all of that. We're gaining back business.
Angelina: Sometimes at a lower price, our salespeople are now getting more traction. And ultimately, I don't see the in-market itself recovering until 2025.
Angelina: That's part of why we changed our guidance. But I also see that Myers Tire Supply, it has a great brand. It's got a great brand and a great ability to service.
Speaker Change: Great, yeah, thanks so much.
Carolina: Thank you. Thanks, Carolina.
Carolina: Thanks, Carolina.
Unknown Speaker: Thank you. We have our next question from William Dezellem from Titan Capital Management.
Speaker Change: Thank you. We have our next question from William Dezellem from Titan Capital Management.
William Dezellem: Thank you. Two questions. First of all, relative to the military.
Unknown Speaker: ammunition carrier business. Do you see that ramp in going from 10 million to 25 to 40 million happening rather evenly over the quarters of this year and next year, or does it end up being pretty lumpy depending on how order shipments go? Walk us through the dynamics of that revenue ramp, if you would, please.
William Dezellem: ammunition carrier business. Do you see that ramp in the going from 10 million to 25 to 40 million happening rather evenly over the quarters of this year and next year?
Speaker Change: or does it end up being pretty lumpy depending on how order shipments go? Walk us through the dynamics of that revenue ramp if you would please.
Unknown Speaker: Yeah, Bill, good to hear from you. So on that business, what we've seen is that the contracts that we get approved for come in chunks of $10 to $15 million. With aerospace or with the military, these things just always take longer than you expect. And so the ramp of those can be a little bit lumpy. The trajectory that Grant had on this slide is correct.
Speaker Change: $10 to $15 million chunks.
Speaker Change: Once that contract is in place, once we're producing the product, we're running 24-7.
Speaker Change: and once each contract is approved, then it's pretty even.
William Dezellem: There's a tremendous amount of restocking worldwide because of these conflicts.
Speaker Change: You know, as we as we mentioned in first quarter.
Grant Fitz: The trajectory that Grant had in this slide is correct.
Unknown Speaker: And that's very helpful. Thank you. And you said you now have three contracts. And I think in the opening remarks, there was a reference to additional, additional contracts that you thought were possible to talk to those about and how significant they could be.
Speaker Change: And that's that's very helpful. Thank you. And you said you now have three contracts. And I think in the opening remarks, there was a reference to additional.
Speaker Change: additional contracts that you thought were possible. Would you talk to those and how significant they could be?
Unknown Speaker: I can't Bill get too much into the specifics because we're dealing with specific countries and their militaries and their sourcing, but you know, you would stand to believe that some of this is in Europe. Some of the countries that have publicly said that they are restocking their artilleries. Some of those that are a little bit more concerned about some of the instability and potential conflict there. So again, we've got good positions in Eastern Europe, as well as in Western Europe. And we're negotiating with some of those militaries on this artillery packaging.
Speaker Change: So, again, we've got good positions in Eastern Europe as well as in Western Europe , and we're negotiating with some of those militaries on this artillery packaging.
Unknown Speaker: Great, thank you. I appreciate that. And, and then shifting to signature, if we could On the longer term, there's this movement to convert from wood mats to composite.
Speaker Change: Did you have in the quarter or this year any meaningful or material kind of tangible evidence of that shift or transition taking place or is this literally just one small piece of business at a time?
Speaker Change: Direction, so remember, let's say 80 to 90 percent of the installed base is a wood product. 10 to 15 percent is a composite product. In the United, in the U.S.
Unknown Speaker: 10-15% is a composite product in the U.S. In Western Europe, the installed base is that aluminum product. It's very similar to what we see with our Buckhorn product and, quite frankly, similar to what we see with our Agro Mills product. It's over the course of several years, or really even decades. The other piece is just the conversion. And again, if you can move your conversion of composites from 10% to 15 or 20%, you're basically doubling the available market.
Speaker Change: In Western Europe , the installed base is that aluminum product.
Speaker Change: To the same extent, 80-90% and then 10 or 20% is a composite product.
Speaker Change: The other piece is just the conversion. And again, if you can move your conversion of composites from 10% to 15% or 20%, you're basically doubling the available market.
Jeff Condino: On the tip of my tongue, I don't specifically know those numbers. I'd have to go back and relook at what we disclosed at Investor Day. But that is a part of the Investor Day materials under Jeff Condino's presentation for anyone to reference.
Unknown Speaker: What proportion of that business is cardboard, or that industry is cardboard? So just really trying to get my mind wrapped around how far along in the transition from cardboard to composites those those bins are.
Speaker Change: What proportion of that business is cardboard, or of that industry is cardboard? So just really trying to get my mind wrapped around how far along in the transition from cardboard to composites those bins are.
Unknown Speaker: The bigger driver there would be in Buckhorn and Signature. On Aquamills itself, if you think about the Kanban bins and organizational bins in industrial settings, at restaurants, and Medical at Nurses Stations as an example, Supply Station. I would be over my skis, Bill, if I tried to talk about how much cardboard versus plastic. But directionally, the key thing to know is that Acro Mills, and there's one other competitor, our product based upon, how we manufacture it, and the raw materials we use, is a little bit more durable, a little bit more heavy duty, typically priced a little bit higher, and it does have a brand known for the The specific conversion rate, again GDP to 2x GDP, but it's not going to be a conversion rate of 15, 10%, or 15%, like what we expect with Signature.
Speaker Change: [inaudible]
Speaker Change: How we manufacture it and the raw materials we use is a little bit more durable, a little bit more heavy duty, typically priced a little bit higher, and it does have a brand known for the highest quality.
Speaker Change: Great. Thank you for the time.
Unknown Speaker: Thank you. We currently have no questions. And as a reminder, to ask any questions, you can press star four by one on your telephone keypad now.
Speaker Change: Thank you. We currently have no any questions and as a reminder to ask any question you can press star followed by one on your telephone keypad now. Thank you.
Speaker Change: Just while we're waiting to see if there's any other questions, Carolina, I had said one item about the cash conversion. I had used the term percentage. I was actually referring to days. We typically have about a 60-day cash conversion cycle when we look at our day sales outstanding, plus days on hand, less our days payable outstanding. So just to clarify that.
Meghan Beringer: All right, well, thanks, Kenneth. And thank you all for joining Myers Industries' second quarter earnings call. We invite you to follow up with additional questions or meeting requests. To schedule 10, please contact me, Meghan Beringer, using the information found on slide 26. Thank you for joining and have a great day.
Speaker Change: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.