MYERS INDUSTRIES, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q and the information incorporated by reference contains "forward-looking statements" within the meaning of the safe harbor provisions of theU.S. Private Securities Litigation Reform Act of 1995, including information regarding the Company's financial outlook, future plans, objectives, business prospects and anticipated financial performance. Forward-looking statements can be identified by words such as "will," "believe," "anticipate," "expect," "estimate," "intend," "plan," or variations of these words, or similar expressions. These forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, these statements inherently involve a wide range of inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. The Company's actual actions, results, and financial condition may differ materially from what is expressed or implied by the forward-looking statements. Specific factors that could cause such a difference include, without limitation, impacts from the novel coronavirus ("COVID-19") pandemic on our business, operations, customers and capital position; the impact of COVID-19 on local, national and global economic conditions; the effects of various governmental responses to the COVID-19 pandemic; raw material availability, increases in raw material costs, or other production costs; risks associated with our strategic growth initiatives or the failure to achieve the anticipated benefits of such initiatives; unanticipated downturn in business relationships with customers or their purchases; competitive pressures on sales and pricing; changes in the markets for the Company's business segments; changes in trends and demands in the markets in which the Company competes; operational problems at our manufacturing facilities or unexpected failures at those facilities; future economic and financial conditions inthe United States and around the world; inability of the Company to meet future capital requirements; claims, litigation and regulatory actions against the Company; changes in laws and regulations affecting the Company; and other risks and uncertainties detailed from time to time in the Company's filings with theSEC , including without limitation, the risk factors disclosed in Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Given these factors, as well as other variables that may affect our operating results, readers should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company expressly disclaims any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them.
Executive Overview
The Company conducts its business activities in two reportable segments: The Material Handling Segment and the Distribution Segment.
The Company designs, manufactures, and markets a variety of plastic, metal and rubber products. The Material Handling Segment manufactures a broad selection of plastic reusable containers, pallets, small parts bins, bulk shipping containers, storage and organization products, OEM parts, custom plastic products, consumer fuel containers and tanks for water, fuel and waste handling. Products in the Material Handling Segment are primarily injection molded, rotationally molded or blow molded. The Distribution Segment is engaged in the distribution of tools, equipment and supplies used for tire, wheel and under vehicle service on passenger, heavy truck and off-road vehicles, as well as the manufacturing of tire repair and retreading products. The Company's results of operations for the quarter and six months endedJune 30, 2022 are discussed below. The current economic environment includes heightened risks from inflation, volatile commodity costs, supply chain disruptions and labor availability stemming from the broader economic effects of the international geopolitical climate, including the conflict betweenRussia andUkraine , and the COVID-19 pandemic.Russia's invasion ofUkraine in the first quarter of 2022 has increased volatility in global commodity markets, including oil (a component of many plastic resins), energy and agricultural commodities. While many of the public safety measures in response to the COVID-19 pandemic have been lifted or relaxed, it is possible that new or previously lifted measures could be implemented in the future. Through the date of this report, the Company's businesses continued to operate during the pandemic. However, some of our businesses have been and may continue to be affected by these broader economic effects, including customer demand for our products, supply chain disruptions, labor availability and inflation. The Company believes it is well-positioned to manage through this uncertainty as it has a strong balance sheet with sufficient liquidity and borrowing capacity as well as a diverse product offering and customer base. 21 --------------------------------------------------------------------------------
Results of Operations:
Comparison of the Quarter EndedJune 30, 2022 to the Quarter EndedJune 30, 2021 Net Sales : (dollars in millions) Quarter Ended June 30, Segment 2022 2021 Change % Change Material Handling$ 173,090 $ 137,227 $ 35,863 26.1 % Distribution 60,075 50,156 9,919 19.8 % Inter-company sales (9 ) (14 ) 5 Total net sales$ 233,156 $ 187,369 $ 45,787 24.4 % Net sales for the quarter endedJune 30, 2022 were$233.2 million , an increase of$45.8 million or 24.4% compared to the quarter endedJune 30, 2021 . Net sales increased due to higher pricing of$31.9 million . Net sales also increased due to$16.4 million of incremental sales from the acquisitions of Mohawk onMay 31, 2022 , included in the Distribution Segment, and Trilogy onJuly 30, 2021 , included in the Material Handling Segment. Mohawk's annual sales were approximately$65 million and Trilogy's annual sales were approximately$35 million at the times of their acquisitions. The increase in net sales was partially offset by lower volume/mix of$2.0 million and the effect of unfavorable currency translation of$0.5 million . Beginning inFebruary 2021 , the Company began to implement a series of pricing increases across a majority of its portfolio of products in response to rising raw material and other production costs. Net sales in the Material Handling Segment increased$35.9 million or 26.1% for the quarter endedJune 30, 2022 compared to the quarter endedJune 30, 2021 . Net sales increased due to higher pricing of$27.1 million and due to$10.3 million of incremental sales from the acquisition of Trilogy onJuly 30, 2021 . The increase in net sales was partially offset by lower volume/mix of$1.0 million and the effect of unfavorable currency translation of$0.5 million . Net sales in the Distribution Segment increased$9.9 million or 19.8% for the quarter endedJune 30, 2022 compared to the quarter endedJune 30, 2021 , primarily due to higher pricing of$4.8 million and due to$6.0 million of incremental sales from the acquisition of Mohawk onMay 31, 2022 . The increase in net sales was partially offset by lower volume/mix of$0.9 million . Cost of Sales & Gross Profit: Quarter Ended June 30, (dollars in millions) 2022 2021 Change % Change Cost of sales$ 158,440 $ 132,375 $ 26,065 19.7 % Gross profit$ 74,716 $ 54,994 $ 19,722 35.9 % Gross profit as a percentage of sales 32.0 % 29.4 % Gross profit increased$19.7 million , or 35.9%, for the quarter endedJune 30, 2022 compared to the quarter endedJune 30, 2021 , due to increased contribution from higher pricing as described underNet Sales above and the acquisitions of Mohawk onMay 31, 2022 and Trilogy onJuly 30, 2021 . Partially offsetting these contributions were increased labor costs and an unfavorable sales mix. As a result, gross profit margin was 32.0% for the quarter endedJune 30, 2022 compared with 29.4% for the quarter endedJune 30, 2021 .
Selling, General and Administrative Expenses:
Quarter Ended June 30,
(dollars in millions) 2022 2021 Change % Change
SG&A expenses $ 52,320 $ 40,121 $ 12,199 30.4 %
SG&A expenses as a percentage of sales 22.4 % 21.4 %
Selling, general and administrative ("SG&A") expenses for the quarter ended June
30, 2022 were $52.3 million , an increase of $12.2 million or 30.4% compared to
the same period in the prior year. Increases in SG&A expenses in the second
quarter 2022 were primarily due to $4.8 million of higher salaries, benefits and
incentive compensation, $2.2 million of higher variable selling expenses, $1.0
million of higher facility costs, $0.9 million of increased professional
services fees and $2.6 million of incremental SG&A from the acquisitions of
Mohawk on May 31, 2022 and Trilogy on July 30, 2021 .
22
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Net Interest Expense:
Quarter Ended June 30,
(dollars in millions) 2022 2021 Change % Change
Net interest expense $ 1,211 $ 999 $ 212 21.2 %
Average outstanding borrowings, net
58.8 %
Weighted-average borrowing rate 3.97 % 5.13 %
Net interest expense for the quarter ended June 30, 2022 was $1.2 million , an
increase of $0.2 million , or 21.2%, compared with $1.0 million for the quarter
ended June 30, 2021 . The higher net interest expense was due to higher average
outstanding borrowings in the current year, partially offset by the lower
borrowing rate.
Income Taxes:
Quarter Ended June 30,
(dollars in millions) 2022 2021
Income from continuing operations before income taxes $ 21,406 $ 14,870
Income tax expense $ 5,575 $ 3,795
Effective tax rate 26.0 % 25.5 %
The Company's effective tax rate was 26.0% for the quarter ended
Comparison of the Six Months EndedJune 30, 2022 to the Six Months EndedJune 30, 2021 Net Sales : (dollars in thousands) Six Months Ended June 30, Segment 2022 2021 Change % Change Material Handling$ 349,726 $ 267,120 $ 82,606 30.9 % Distribution 108,936 94,706 14,230 15.0 % Inter-company elimination (20 ) (28 ) 8 Total net sales$ 458,642 $ 361,798 $ 96,844 26.8 % Net sales for the six months endedJune 30, 2022 were$458.6 million , an increase of$96.8 million or 26.8% compared to the six months endedJune 30, 2021 . Net sales increased due to higher pricing of$65.5 million and higher volume/mix of$4.6 million . Net sales also increased due to$27.2 million of incremental sales from the acquisitions of Mohawk onMay 31, 2022 , included in the Distribution Segment, and Trilogy onJuly 30, 2021 , included in the Material Handling Segment. Mohawk's annual sales were approximately$65 million and Trilogy's annual sales were approximately$35 million at the times of the acquisitions. The increase in net sales was partially offset by the effect of unfavorable currency translation of$0.5 million . Beginning inFebruary 2021 , the Company began to implement a series of pricing increases across a majority of its portfolio of products in response to rising raw material and other production costs. Net sales in the Material Handling Segment increased$82.6 million or 30.9% for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Net sales increased due to higher pricing of$56.4 million and higher volume/mix of$5.5 million . Net sales also increased due to$21.2 million of incremental sales from the acquisition of Trilogy onJuly 30, 2021 . The increase in net sales was partially offset by the effect of unfavorable currency translation of$0.5 million . Net sales in the Distribution Segment increased$14.2 million or 15.0% for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily due to higher pricing of$9.1 million and due to$6.0 million of incremental sales from the acquisition of Mohawk onMay 31, 2022 . The increase in net sales was partially offset by lower volume/mix of$0.9 million . 23 --------------------------------------------------------------------------------
Cost of Sales & Gross Profit:
Six Months Ended June 30,
(dollars in thousands) 2022 2021 Change % Change
Cost of sales $ 311,998 $ 256,391 $ 55,607 21.7 %
Gross profit $ 146,644 $ 105,407 $ 41,237 39.1 %
Gross profit as a percentage of sales 32.0 % 29.1 %
Gross profit increased $41.2 million , or 39.1%, for the six months ended June
30, 2022 compared to the six months ended June 30, 2021 , due to increased
contribution from higher pricing and volume as described under Net Sales above
and the acquisitions of Mohawk on May 31, 2022 and Trilogy on July 30, 2021 .
Partially offsetting these contributions were higher raw material costs,
increased labor costs, and unfavorable sales mix. As a result, gross profit
margin was 32.0% for the six months ended June 30, 2022 compared with 29.1% for
the six months ended June 30, 2021 .
Selling, General and Administrative Expenses:
Six Months Ended June 30,
(dollars in thousands) 2022 2021 Change % Change
SG&A expenses $ 100,310 $ 79,669 $ 20,641 25.9 %
SG&A expenses as a percentage of sales 21.9 % 22.0 %
Selling, general and administrative ("SG&A") expenses for the six months ended
June 30, 2022 were $100.3 million , an increase of $20.6 million or 25.9%
compared to the same period in the prior year. Increases in SG&A expenses in
2022 were primarily due to $9.5 million of higher salaries, benefits and
incentive compensation, $3.4 million of higher variable selling expenses, $2.3
million of higher facility costs, $1.2 million of increased professional
services fees and $3.7 million of incremental SG&A from the acquisitions of
Mohawk on May 31, 2022 and Trilogy on July 30, 2021 .
Net Interest Expense:
Six Months Ended June 30,
(dollars in thousands) 2022 2021 Change % Change
Net interest expense $ 2,358 $ 1,994 $ 364 18.3 %
Average outstanding borrowings, net
$ 37,359 51.1 % Weighted-average borrowing rate 4.05 % 5.23 % Net interest expense for the six months endedJune 30, 2022 was$2.4 million , an increase of$0.4 million , or 18.3%, compared with$2.0 million for the six months endedJune 30, 2021 . The higher net interest expense was due to higher average outstanding borrowings in the current year, partially offset by the lower borrowing rate. Income Taxes: Six Months Ended June 30, (dollars in thousands) 2022 2021 Income from continuing operations before income taxes$ 44,664 $ 24,740 Income tax expense$ 11,496 $ 6,360 Effective tax rate 25.7 % 25.7 %
The Company's effective tax rate was 25.7% for both the six months ended
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--------------------------------------------------------------------------------Liquidity and Capital Resources:
The Company's primary sources of liquidity are cash on hand, cash generated from operations and availability under the Loan Agreement (defined below). AtJune 30, 2022 , the Company had$22.4 million of cash,$178.3 million available under the Loan Agreement and outstanding debt of$113.6 million , including the finance lease liability of$9.7 million . Based on this liquidity and borrowing capacity, the Company believes it is well-positioned to manage through the working capital demands and the heightened uncertainty in the current macroeconomic environment. The Company believes that cash on hand, cash flows from operations and available capacity under its Loan Agreement will be sufficient to meet expected business requirements including capital expenditures, dividends, working capital, debt service, and to fund future growth, including selective acquisitions.
Operating Activities
Net cash provided by operating activities was$34.3 million for the six months endedJune 30, 2022 , compared to$21.3 million in the same period in 2021. The increase was primarily due to higher net income in the current year partially offset by higher working capital driven by increases in accounts receivable and inventory. Investing Activities Net cash used by investing activities was$33.7 million for the six months endedJune 30, 2022 compared to cash used of$6.6 million for the same period in 2021. In 2022, the Company paid$24.3 million to acquire Mohawk and estimates approximately$3.4 million of working capital and other adjustments to be paid in the balance of 2022 as discussed in Note 3. The Company also received in 2022 proceeds of$1.5 million from the sale of fixed assets. In 2021, the Company paid the working capital adjustment of$1.2 million related to theNovember 10, 2020 acquisition ofElkhart Plastics as discussed in Note 3 and received proceeds from the sale of a facility of$2.8 million as discussed in Note 4. Capital expenditures were$10.9 million and$8.2 million for the six months endedJune 30, 2022 and 2021, respectively, including$1.4 million to purchase the manufacturing assets of a rotational molding facility inDecatur, Georgia . Full year 2022 capital expenditures are expected to be approximately$25 million to$28 million . Financing Activities Cash provided by financing activities was$4.3 million for the six months endedJune 30, 2022 compared to$29.5 million used for financing activities for the same period in 2021. Net borrowings on the credit facility for the six months endedJune 30, 2022 and 2021 were$13.0 million and$19.9 million . In 2021, the Company repaid a$40.0 million Senior Unsecured Note when it matured inJanuary 2021 with a combination of cash and proceeds under the Loan Agreement (defined below). Fees paid for the amendment and extension of the Loan Agreement inMarch 2021 totaled$1.1 million . Net proceeds from the issuance of common stock in connection with incentive stock option exercises were$1.8 million and$2.4 million for the six months endedJune 30, 2022 and 2021, respectively. The Company also used cash to pay dividends of$9.9 million and$9.8 million for the six months endedJune 30, 2022 and 2021, respectively.
Credit Sources
InMarch 2021 , the Company entered into a Sixth Amended and Restated Loan Agreement (the "Sixth Amendment"), which amended the Fifth Amended and Restated Loan Agreement (collectively, the "Loan Agreement") datedMarch 2017 . The Sixth Amendment increased the senior revolving credit facility's borrowing limit to$250 million from$200 million , extended the maturity date toMarch 2024 fromMarch 2022 , and increased flexibility of the financial and other covenants and provisions.
As of
AtJune 30, 2022 ,$38 million face value of Senior Unsecured Notes are outstanding. The series of notes range in face value from$11 million to$15 million , with interest rates ranging from 5.25% to 5.45%, payable semiannually. As described in Note 11,$26.0 million of the Senior Unsecured Notes mature onJanuary 15, 2024 and$12.0 million mature onJanuary 15, 2026 . 25
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As ofJune 30, 2022 , the Company was in compliance with all of its debt covenants. The most restrictive financial covenants for all of the Company's debt are an interest coverage ratio (defined as earnings before interest, taxes, depreciation and amortization, as adjusted, divided by interest expense) and a leverage ratio (defined as total debt divided by earnings before interest, taxes, depreciation and amortization, as adjusted). The ratios as of and for the period endedJune 30, 2022 are shown in the following table: Required Level Actual Level Interest Coverage Ratio 3.00 to 1 (minimum) 22.31 Leverage Ratio 3.25 to 1 (maximum) 1.17
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