Q3 2024 Myers Industries Inc Earnings Call
Hello and welcome to the Myers Industries Q3, 2024 earnings call. My name is Elliot, and I'll be coordinates in your calls today.
If you would like to register a question-gen state event, please press star for by one on New [inaudible]
and I'll have to hand over to Meghan Beringer, direct to her investor relations. Please go ahead.
Speaker Change: Thank you, Elliot. So, they have to name everyone, and thank you for joining Myers Conference Call, through the 2020-24 Third Order result. I'm Meghan Beringer, Senior Director of the Investor Relations at Myers Industry.
So, in each day of the state bath, our interim chief executive officer and Grant Fitz, our executive vice-president and chief executive officer.
Speaker Change: and the American Service Service. After the market's closed today, we issued a press release outlining our financial results to the third quarter of 2024.
We have also posted a presentation to a company today prepared remarks, which is available at OZE Investor Relations tab at www.myartindustries.com.
This call is being webcasted on our website and we'll be our time to along with the transcripts of the call shortly after this event.
After the prepared remarks, we will host the questions and answers session.
Speaker Change: Police turns his lives to the presentations for our State Farber Disclosure.
I would like to remind you that we may make some forward-looking statements during this call.
These comments are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such 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 gross profit, adjusted operating income, adjusted EBITDA, and adjusted earnings per share may be discussed on this call.
Further, information concerning these risks, uncertainties, and other factors are set forth in the company's periodic FDC filings.
and may be found in the company's 10-Q filing.
Speaker Change: Please turn to slide 3 of our presentation.
as I will now turn the call over to Dave Vance.
Dave Vance: Thank you, Megan. Good afternoon, everyone, and welcome to our third quarter 2024 earnings call.
Dave Vance: I'm pleased to speak with you as Myers Interim President and CEO.
I would like to thank the board for entrusting me to lead Myers Industries through this time of transition.
I'm confident that together, with support of the board, we will continue to make improvements to move Myers forward.
Now let's discuss the highlights of the third quarter.
Please turn to slide four.
Dave Vance: During the quarter, the addition of signature systems to the Meyers portfolio, along with Scepter's strong performance, allowed for sales, gross margin, and adjusted EBITDA growth.
Dave Vance: For the quarter, Signature was the primary driver of our gross margin expansion due to their highly differentiated product line.
Dave Vance: Scepter sales increased about 60% versus a prior year, driven by additional contracts and revenue in the military and market, and the delivery of fuel cans to help those impacted by recent hurricanes.
These two power brands helped us grow during the quarter and demonstrate the benefit of developing similar branded products to drive Meijer's growth.
Dave Vance: Demand headwinds persisted in several markets, notably in recreational vehicles, marine, and automotive aftermarkets.
Dave Vance: We anticipate cautious customer spending behavior for the remainder of the year and likely continuing into 2025.
Dave Vance: These initiatives are incremental to the previously announced $7 to $9 million cost improvement plan and $8 million in synergies from a signature acquisition.
Dave Vance: This will strengthen our cost position and help mitigate revenue headwinds.
The benefit of these actions are unscheduled to be fully realized by the end of 2025.
During the quarter, we also paid down $5 million of our Term A loan amortization and $8 million of our revolver, totaling $13 million of debt pay down.
We remain committed to reducing our leverage ratio to approximately 2x by the end of next year, positioning Myers for future expansions.
Dave Vance: Acquisitions
Dave Vance: Given the current conditions, we are reducing our full-year guidance to the range of 92 to 102.
Slide 5 of today's presentation is a reminder of our strategic lens.
Dave Vance: Our storage handling and protection portfolio is comprised of four power brands.
They are Buckhorn, Acromills, Scepter, and Signature Systems.
Dave Vance: This portfolio is positioned to grow while we focus on maximizing the value of our engineered solutions and automotive aftermarket portfolios
Dave Vance: Slide 6 summarizes many of the actions that we have taken during the third quarter.
Dave Vance: Scepter was well positioned to rapidly respond to the spike in demand for portable fuel containers in support of hurricane recovery efforts.
Scepter is also working on winning new contracts for our lightweight military ammunition containers, which continue to see strong acceptance in that market.
We also have strong sales momentum for Signature's Megadeck ground protection product.
Dave Vance: We are expanding our product offerings through our e-commerce channel, which is growing faster than the industry average.
Continued investment in our power brands and the e-commerce channel will fuel Meyers future growth.
Dave Vance: Across our engineering solutions and automotive aftermarket portfolios, we continue to focus on improving cash flow as they have been adversely impacted by current macroeconomic conditions.
In late September, we appointed a new leadership team for our distribution business. This team has significant experience in operational excellence, specifically in cost reduction and revenue growth.
Dave Vance: We expect to see the results of these actions in the coming quarters.
Turning to slide seven, let's review a few examples of how our power brands are growing. In this past quarter, we saw a spike in the use of signature products by customers who are assisting in storm restoration efforts.
Dave Vance: and Signature's customer base is growing. Over 20% of their 2024 revenue will come from new customers.
Additionally, turning to slide 8, we anticipate this scepter will continue to grow.
Dave Vance: They're on track to exceed the 2024 forecast of $25 million of military sales.
Dave Vance: The Scepter team was also awarded the Pro Tool Innovation Award for its recently launched powered filling station.
Dave Vance: This award highlights groundbreaking tools and fasteners from leading industry manufacturers.
Dave Vance: In summary, the sales of our power brands are growing, however, our consolidated results during the past quarter did not meet our expectations.
and we're taking both operational and commercial actions to improve our results.
Speaker Change: Now, I'll turn the call over to Grant for a detailed review of our third quarter financial results and updates to our outlook.
Speaker Change: Thank you, Dave. I'd like to begin on slide nine to go over the full summary of the third quarter 2024 financial results.
Grant: Net sales were $205.1 million, which increased $7.3 million, or 3.7%, compared to the third quarter of 2023.
Grant: with the increase driven by both the signature acquisition and strong demand for receptor products in both the military and market and for fuel containers offset by low pricing and volumes across the other segments.
Grant: Our quarterly adjusted gross profit was $66.3 million, an increase of $3.7 million, or 5.8% compared to Q3 of last year.
Grant: Adjusted gross margin was 32.4% compared to 31.7% in 2023.
Grant: The favorable variance and adjusted gross margin was largely driven by the acquisition of signature, favorable product mix, and lower material costs, partially offset by lower pricing and volume.
Dave Vance: Selling general and administrative expenses increased $4 million, or 9.1% to $47.7 million due to the acquisition of Signature, partially offset by cost savings initiatives and reduced variable compensation.
Dave Vance: SG&A as a percentage of sales increased to 23.3% in the third quarter of 2024 compared to 22.1% in the same period last year.
Dave Vance: Operating income in the third quarter decreased to a loss of $4.8 million as compared to $18.7 million in Q3 of 2023.
Dave Vance: In the quarter, we recognized a $22 million non-cash charge for goodwill impairment related to the rotational molding business within our material handling segment.
Dave Vance: The impairment primarily results from the continued anticipated market headwinds that we have seen in that business.
Dave Vance: The charge does not affect cash or covenant compliance.
Dave Vance: On an adjusted basis, operating income increased to $20.5 million compared to $20 million in the third quarter of 2023.
Dave Vance: Third quarter adjusted EBITDA was up to $30.7 million versus $25.6 million in the prior year quarter.
Dave Vance: Adjusted EBITDA margin was 15% compared to 13% in the third quarter of last year, primarily associated with Signature's high margin profile.
Dave Vance: Deluded adjusted earnings per share was $0.25 compared to $0.38 in Q3 of 2023, with a difference largely driven by increased interest expense related to the term loan which was used to finance our acquisition of Signature.
Dave Vance: For an overview of each segment's performance, please turn to slide 10.
Dave Vance: For the material handling segment, net sales increased to $18.2 million, or 13.8% compared to the prior year.
Dave Vance: Sales from Signature and Scepter's military and gas can growth were partially offset by sales declines, primarily in seed boxes and IBC paste containers within the food and beverage end markets, as well as continued headwinds in the RV and marine end markets.
Dave Vance: to $33.5 million and adjusted EBITDA margin increase to 22.2% or an improvement of 320 basis points compared to the prior year.
Dave Vance: The positive margin improvements were attributed to the signature acquisition, partially offset by higher material costs and lower sales volume and pricing.
Dave Vance: Net sales for the distribution segment decreased $11 million, or 16.8% year-over-year, to $54.4 million, driven by lower volume and pricing, partially offset by improved SG&A costs.
Dave Vance: Adjusted EBIT out for the distribution segment decreased $3.4 million or 51.8% to $3.2 million resulting in adjusted EBIT a margin decreasing 430 basis points to 5.8% as compared to 10.1% in the prior year's quarter.
Dave Vance: Turning to slide 11.
Dave Vance: As prefaced earlier, we are continuing to identify and execute on an additional tranche of cost-cutting initiatives with an annualized savings goal of $15 million.
Dave Vance: which is incremental to the original $7 to $9 million target and $8 million in signature synergies.
Dave Vance: Generally, these additional initiatives will be driven by labor savings, manufacturing efficiencies, and other savings initiatives.
Dave Vance: These new cost savings actions will also help to mitigate the continued revenue headwinds that we are seeing in several of our end markets.
Dave Vance: The annualized cost improvement plan will also continue to drive our transformation as Myers evolves into a simpler, more efficient organization and better positions the company to accelerate growth when market conditions improve.
Dave Vance: Turning to slide 12, free cash flow for the third quarter of 2024 was $10.1 million compared to $18.1 million for the third quarter of 2023.
Dave Vance: Working capital as a percentage of sales was up compared to the third quarter of 2023 due to timing of receivables and increased seasonal inventory levels at Scepter and increased inventory at Patch Rubber.
Dave Vance: Capital expenditures for the third quarter of 2024 were $7.2 million, reflecting additional investment in production capacity and maintenance projects.
Dave Vance: Cash on hand at quarter end totaled $29.7 million.
Dave Vance: Our debt-to-adjusted EBITDA ratio on a pro forma basis for the trailing 12 months at the end of the third quarter was 2.7 times, up slightly from 2.6 times in the second quarter, primarily due to the lower quarter-over-quarter earnings.
Speaker Change: As Dave mentioned in his introduction, during the quarter, the company paid down $13 million in debt, with $5 million for the Terminal A amortization and $8 million for the revolver.
Speaker Change: On slide 13, I want to reiterate Myers Capital Allocation Priorities.
Speaker Change: As noticed, we are focused on creating simplified buyers through cost-cutting initiatives and increasing revenue and volumes via the strength of our full-power brands.
Speaker Change: Additional cash on hand will be allocated first to pay down debt. Myers is focused on maintaining a sound balance sheet with ample liquidity to support the company's investment priorities.
Speaker Change: Now please turn to slide 14, which shows our updated outlook for fiscal year 2024 and our prior guidance.
Dave Vance: We are reducing our full-year guidance to reflect softer demand in several of our end markets, which we discussed earlier in this presentation.
Dave Vance: Our new guidance ranges are net sales growth of zero to five percent.
Dave Vance: Net income per diluted share in the range of $0.11 to $0.21
Dave Vance: The prior outlook was 76 cents to 91 cents.
Dave Vance: Adjusted earnings per diluted share in the range of $0.92 to $1.02.
Dave Vance: Capital expenditures in the range of $28 million to $32 million, with an effective tax rate remaining at approximately 26 percent.
Dave Vance: Turning to slide 15, our third quarter results were significantly impacted by unfavorable macroeconomic conditions affecting some of our end markets.
Dave Vance: We are looking toward the future and remain committed to executing our strategic priorities and driving growth across Meijer's industries.
Dave Vance: We are executing on our long-term strategy.
Dave Vance: Our $350 million investment in Signature is delivering strong results.
Dave Vance: We are positioned to acquire additional businesses with strong brands that hold top positions in profitable niche markets.
Dave Vance: We are also implementing $15 million in new annualized cost savings.
Dave Vance: These actions will help to mitigate the pressures from end market headwinds, enabling us to remain competitive.
Dave Vance: Thank you.
Dave Vance: An important priority is improving our distribution business. The new leadership team is identifying positive actions to improve the performance of this business.
Dave Vance: Finally, we are increasing our participation in high-growth end markets, including sectors such as military and infrastructure, and expanding our e-commerce channel to capitalize on new sources of demand.
Dave Vance: These proactive steps will improve our cost competitiveness and position buyers for longer-term growth as demand in some of our end markets recover.
Dave Vance: With that, I'd like to turn the call over to the operator for questions. Operator?
Speaker Change: Thank you. If you would like to ask a question please press star followed by one on the telephone keypad. If you would like to withdraw your question please press star followed by two.
Speaker Change: When preparing to ask a question, please ensure your device is unmuted locally.
Speaker Change: Thank you.
Speaker Change: First question comes from Christian Zeiler with Key Corp. Your line is open, please go ahead.
Christian Zeiler: Thank you. Good afternoon, everyone.
Christian Zeiler: Dave, I know you've been at Myers for four years now, but as you've been in the CEO seat for the last two months, what have you been focused on and in which parts of the business do you think you can make the biggest impact?
Dave Vance: Well, we're focused on two areas. One is growing our power brands. And secondly, we're focused on
Christian Zeiler: optimizing our costs, getting our costs in control for our engineering products businesses primarily. So we've been developing
Speaker Change: a slate of plans to achieve those objectives.
Speaker Change: Great, thanks. And then I guess as the year has played out, where have you guys been the most surprised with the performance of your four power brands? And where do you see the most upside in the near term or midterm?
Speaker Change: Yeah, hi Christian, this is Grant. So I would say, you know, looking back at the year, you know, for the bulk of the year, we've been facing headwinds, as we've been talking about, with the RV and Marine, as well as in our automotive aftermarket with the distribution business.
Christian Zeiler: So that has, you know, it's continued to, unfortunately, be something that's been in front of us throughout the year.
Dave Vance: I think what's changed since the last time we talked in our Q2 earnings is that we're seeing now some additional headwinds in our food and beverage market, particularly with the seed containers as well as our IBC paste containers.
Dave Vance: We had anticipated that we were going to see some declines with the seed containers just because last year was a record year and certainly, you know, there's a seven-year cycle within that product.
Dave Vance: We were hoping to offset that to some degree with our industrial boxes as well as our IBCs to some degree. That hasn't happened to the full extent. So I think that's probably the piece that has changed the most since we last met after the Q2 earnings.
Dave Vance: The additional issue is that I think we've also just recognized
Dave Vance: that are distribution business, we need to make some changes and we need to go move forward to really get that business back on track and start to work towards growing the business.
Dave Vance: We've talked a lot in the past on some of the Mohawk integration issues.
Dave Vance: I think our focus now is what can we do to improve the overall commercialization of that business.
Dave Vance: looking at where we might have gaps with sales coverage.
Dave Vance: and we might have issues that we need to win back customers.
Dave Vance: that we had lost through the MOAC transition.
Dave Vance: as well as just focusing on cost reductions in that business as well, too. And we're pretty excited about the team that's been put in place. We think they've got really some strong capabilities, and it's not just been the leader of the business. We've also made some significant changes with other leadership members for the distribution business.
Speaker Change: Thanks. I guess that tees up my next question pretty well. So your ETS guide suggests 4Q in a range of 7 to 17 cents. So should we be thinking that distribution will post negative margin or is it positive and you expect a significant reduction in the material handling margin?
Speaker Change: Yeah, it's it's going to be probably a mix of crossings. In general, we might have a little bit of seasonality with the fourth quarter, you know, some of our businesses
Speaker Change: things start to slow down a little bit for that fourth quarter, so there is...
Dave Vance: There is some margin impact just with the lower volumes that we would have with a material handling business.
Dave Vance: I wouldn't throw in the towel on, you know, a negative margin.
Dave Vance: quite yet on the distribution business.
Dave Vance: We would like to continue to have that business be profitable and continue to grow profits over the longer term, but we have work to do in that business without question.
Dave Vance: as I mentioned, with some of the leadership changes that we need to be putting in place for that. You did ask in the prior question, I probably didn't address it as well, is just in terms of the upsides that we see for the business.
Dave Vance: in particular, the military business for Scepter. We've talked about growing that business from, I think it was 11 million last year to over 25 million this year. And we've projected that we will get up to 40 million next year. So really strong continued improvements there as we both ramp up some of the contracts and the capacity that we've put in place for that business.
Dave Vance: Additionally, we will get some, you know, some further tailwinds from some of the hurricane activity, storm recovery activity in the fourth quarter, those two hurricanes.
Dave Vance: for just a quarter, just as we balance that out.
Dave Vance: Additionally, you know, we feel very, very good about the signature business.
Dave Vance: continue to see strong demand for the infrastructure projects.
Dave Vance: and that business we continue to see longer term growth and continue to drive that forward.
Dave Vance: And as we talked about, the e-commerce, you know, continues to do well for us.
Dave Vance: It helps us support not only our four power brands, but also other parts of our business, including the rotational molding business with our RV tank sales, as well as in our distribution business.
Speaker Change: Great, thank you. Last one for me and then I'll jump back in queue, but just kind of going on that e-commerce point, can you just give us an update on the e-commerce strategy, kind of what's been working, and then are there other parts of your portfolio that you look at and think can benefit from opening up to some e-commerce or DTC channels? Thank you.
Speaker Change: Yeah, we continue to, AcroVille's is our largest product line that's sold through e-commerce. We continue to grow that. It's primarily...
Speaker Change: through Amazon. We're learning and growing in our ability to influence the sales through Amazon, so we're getting better at that, and that's helping.
Speaker Change: drive our increases, but we're also launching new product lines through Amazon, for example, in the Roto products and also some distribution products.
Speaker Change: We have a team focused on that. We spent a lot of effort on that.
Speaker Change: on Bell.
Speaker Change: substantial margins for that product.
Speaker Change: Great, thank you for the call.
Speaker Change: We now turn to William de Zellem with Titan Capital Management. Your line is open, please go ahead.
Speaker Change: Thank you. Two questions. First of all, does Jeff and the new distribution team...
Speaker Change: a very good customer analysis to determine where we have coverage gaps and they're working rapidly to fill those positions.
Speaker Change: The other thing I would just add, Bill, is we are here in Las Vegas at the SEMA conference this week, so that's one of the largest auto aftermarket conferences.
Speaker Change: In short order, the team has really done a nice job in putting together a very big promotional program that's been sponsored by our suppliers.
Speaker Change: that we really are pretty excited about to see that we might get some additional incremental volume that we hadn't quite anticipated completely through this activity here this week.
Speaker Change: So just in a short time, the team's been there for probably less than a month, but they've really come up with some...
Speaker Change: some good analysis, as Dave mentioned, but also good, you know, fresh thinking about ways that we can leverage some of our existing channels and also leverages things like this with the event that we have here at Thema this week.
Speaker Change: Great, that's helpful. And then back to the original cost savings of $7 to $9 million, what was the original anticipated timeline for that to be fully implemented?
Speaker Change: as well as our Atlantic roto-molding facility.
Speaker Change: So I would say in general, you know, we're probably going to continue to implement those.
Speaker Change: through 2025, but I would, and we should be up at a full year run rate by the end of the year, but that would definitely be probably a little bit ahead of time versus the current tranche that we've identified of the 15 million. So we may not be giving you a firm guideline of...
Speaker Change: you know, the exact timing, but I would say, in general, that first tranche should be implemented earlier than the second tranche.
Speaker Change: Great. Thank you both.
Speaker Change: Yep.
Speaker Change: Thanks, Phil.
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now.
Speaker Change: We now turn to Nick Torr with Black Roots Capital. Your line is open, please go ahead.
Nick Torr: Thank you. Just to follow up on the previous question, are any of the cost cutting measures, the tranche one or the tranche two, reflected in your third quarter results?
Speaker Change: For the most part, Nick, this grant...
Speaker Change: We were really implementing our TRANCH 1 initiatives in Q3, so not a significant impact with the Q3 results. We will get some of that in Q4, but again, we will be continuing to implement those initiatives throughout 2025. But I would say that we'll start to pick up some momentum from some of those initiatives.
Nick Torr: really looking at potentially offsetting some of the headwinds that we've talked about with some of our end markets. So it is something that we want to continue to keep a very close eye on, just how the markets develop and where we're at in terms of accelerating those actions.
Speaker Change: Okay, great. So nothing really is reflected in your EBITDA in the third quarter, but we should start to see some of those in the fourth quarter, but really in 2025 is where we see sort of the full impact.
Speaker Change: That's correct, yes.
Speaker Change: Okay, great. And then, in terms of your distribution business, if you could just...
Speaker Change: give me a sense of how does that business strategically fit with what you are trying to accomplish in terms of hydrating your portfolio? What is sort of the strategic rationale, you know, continuing to keep it as part of Myers?
Speaker Change: Yeah, well, you know we distribution is an important part of Meyers heritage I mean, you know Meyers was founded on as one of the original businesses was the distribution business at the
Speaker Change: The original business was a distribution business.
Speaker Change: were very committed to improving that business.
Nick Torr: So we've got a lot of, we're focusing a lot of effort, and we've put some of our best operations.
Nick Torr: and commercial people on it now to improve that business.
Nick Torr: So, you know, that's our stance, you know, certainly is that main focus on that distribution business is to return it to the profitability levels that we've enjoyed in the past and improve from there.
Speaker Change: Thank you.
Speaker Change: Okay, I mean, I guess it's one shareholder's opinion, but it seems, you know, it's a lower margin business. It doesn't have a secular growth profile. And maybe once you've done it around, you know, it's maybe better than, you know, somebody else's portfolio. But just going back to the guidance you guys had given a few quarters back.
Speaker Change: of sort of 10% organic growth profile on the top line. Is that sort of still your thinking? You had a generically going forward that that is the growth profile of the business.
Speaker Change: I would say, in general, we still see very strong growth profile opportunities for the four power brands.
Speaker Change: And so I would say that we're, you know, moving away from that. We certainly have.
Speaker Change: some headwinds that we're dealing with in the food and beverage area, but we really continue to see very strong growth profile with the Signature business, with our Scepter business.
Speaker Change: and also with the Acro Mills business and Buckhorn business, we expect those to continue to grow in the future. So no, I wouldn't say there's any significant change there.
Speaker Change: The one that's been disappointing to us, obviously, has been our distribution business.
Speaker Change: for Automotive Aftermarket with the declines that we've had this year.
Speaker Change: We really want to continue to focus on...
Speaker Change: both on the cost side as well as how we can improve the revenue trends that we've seen in that business.
Speaker Change: But I would say, you know, as we put those measures in place, we've looked at, I believe we had set basically the distribution business and our engineered solutions portfolio would be, would be essentially GDP type of businesses in terms of the growth levels.
Speaker Change: Okay, great. That's all for me. Thank you so much.
Speaker Change: Thanks, Nick. Thanks, Nick.
Speaker Change: We have no further questions so this concludes our Q&A. I'm going to hand back to Megan Beringer for any final remarks.
Megan Beringer: Yeah, thank you everyone for joining us today. If you have additional questions, or would like to schedule time with our management team, you can contact me. My information is on slide 16.
Speaker Change: Thanks for your interest the Myers and have a great day.
Speaker Change: Thank you. Thanks, everyone.
Speaker Change: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.