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Text: I am Monica Vinay, Vice President of Investor Relations and Treasurer at Myers Industries.
If you have not yet received cast on our website and will be archived along with the transcript of the call shortly after this event.
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.
Further information concerning these risks, uncertainties and other factors is set forth in the company's periodic SEC filings and may be found in the company's 10-K and 10-Q filings.
I am pleased to share that we had another quarter of strong sales growth and continue to make good progress in advancing our long-term vision.
The second quarter was defined by continued recovery across our key end markets and strong operational execution in a challenging environment.
On top of that, earlier this week, we announced the acquisition of Trilogy Plastics, which marks our second acquisition in the last nine months and another proof point in the execution of Horizon one of our long-term strategy.
The acquisition of Trilogy continue to grow our rotational molding platform, and we have included a slide in the appendix of our slide deck today with more background for you.
I will review Trilogy and provide some additional updates on our strategy in my closing remarks.
Continued strong demand across our Material Handling and Distribution segments drove a 58% year-over-year growth in sales, and we delivered a second consecutive quarter of year-over-year revenue growth in excess of 20% on an organic basis, with all end markets supplying solid growth.
Demand from our customers is strong and looks to continue.
We have the leading market share of high-quality, well-regarded products, and we have seen that the demand for these products is durable and lasting, even in a pandemic.
I am pleased with our niche market focus and approach.
It provides us a solid foundation on which to build and grow Myers.
Despite our exciting long-term vision, however, we have had some short-term headwinds, increasing raw material prices and other inflationary pressures continued throughout this quarter.
And in some cases, were more than we anticipated.
While we expect them to be temporary in nature, the short-term raw material issues around supply and cost escalations have been unprecedented.
We have taken swift action, announcing and implementing price increases in March and April and again in July.
Unfortunately, our finished good prices were not able to keep up with the pace of cost increases, and we experienced margin compression during the quarter.
As we have said before, we are committed to restoring and expanding our margins across the enterprise.
This is one of the key objectives of the self-help component of Horizon 1.
Like many companies, we are also seeing tightness in the labor market.
And while we are working to mitigate the impact, labor cost increases and scarcity have been a headwind in 2021 that will likely persist in the near-term.
Over the coming months, we remain diligent in monitoring and adjusting our actions to mitigate the impact of inflation.
We are working to ensure we strike a fair, long-term mindset with our customers, doing our best to ensure they have supply, while ensuring our products are priced appropriately for the value they provide.
Our self-help efforts are delivering results, and were headed in the right direction strategically and operationally.
We are transforming Myers and are successfully executing against our long-term vision and strategy.
Let us begin with a review of our second quarter financial results on slide four.
Net sales were up $69 million, an increase of 58%.
Excluding the impact of the Elkhart acquisition, organic net sales increased 26% due primarily to higher volume mix.
Favorable price contributed 5% and FX 1%.
Sales increased in both our Material Handling and Distribution segments in all key end markets.
Adjusted gross profit was up $12.5 million, while gross margin decreased from 36% in the prior year to 29.4% in the quarter.
Margin was negatively impacted by higher raw material costs, primarily resin, which continued to increase sequentially during the quarter.
These costs were not fully offset by higher prices, which led to an unfavorable price to cost relationship.
Adjusted operating income increased $2.80 million to $15.1 million.
The increase in gross profit was mostly offset by higher SG&A expenses, driven by the addition of Elkhart, higher salaries and incentive compensation costs and higher legal fees.
Adjusted EBITDA was $20.5 million, an increase of $2.4 million compared to the prior year, and adjusted EBITDA margin was 10.9%.
And lastly, adjusted earnings per share was $0.29, an increase of $0.06 or 26% compared to the prior year.
Turning now to slide five for an overview of segment performance.
Beginning with material handling, net sales increased $56 million or 70%, including the Elkhart acquisition.
On an organic basis, material handling net sales increased 24% due to strong volume mix.
We gained an additional 6% due to favorable price and 2% in FX.
Material handling adjusted operating income increased approximately 8% to $17 million, driven by higher volume mix and the addition of Elkhart, which were partially offset by an unfavorable price to cost relationship due to escalating raw material costs and higher SG&A expenses.
The increase in SG&A expenses was primarily due to the addition of Elkhart, higher salaries and incentive compensation costs, increased travel cost and legal fees.
In the Distribution segment, sales increased $12.6 million or 34%, driven by both equipment and consumable sales.
Distribution's adjusted operating income more than doubled from the prior year to $4.2 million.
The growth was driven by higher volume mix that was partially offset by higher incentive compensation costs.
Turning to slide six.
Free cash flow was $11.7 million in the quarter, an increase of $8.1 million over the prior year, driven by higher cash from comps.
On a year-to-date basis, free cash flow was $13.1 million.
Cash on hand at quarter end was $13.5 million.
Our balance sheet remains strong.
At the end of the second quarter, leverage was one times.
Our capital structure continues to provide the flexibility needed to execute our growth strategy.
And on July 30, we utilized our revolving credit facility to finance the Trilogy acquisition.
Turning to slide seven.
Before providing an update on guidance, let me take a moment to discuss the ongoing macroeconomic environment.
As Mike mentioned, and similar to many other industrial manufacturers, we are facing what we believe are temporary disruptions in the supply chain, which have led to unprecedented increases in raw material costs this year.
We have continued to take pricing actions to mitigate these significant increases.
But due to a lag in price realization, we have not been able to keep up with the pace of cost increases.
As a result, we expect to remain in an unfavorable price to cost position for the third quarter.
We believe many factors, including additional supplier capacity should result in resin costs moderating and potentially easing as we continue through the year.
As such, we expect our price to cost relationship to turn favorable in the fourth quarter.
Let me now provide an update on our outlook for fiscal 2021, which includes expected results of the Trilogy acquisition completed on July 30.
Reported net sales are anticipated to increase in the mid-40% range.
Our previous sales guidance was in the high 30% range.
Note that a little more than half of the expected increase over the prior year is due to the impact of both the Elkhart and Trilogy acquisitions.
Elkhart's annual net sales at the time of acquisition were approximately $100 million.
And Trilogy's annual net sales are roughly $35 million.
We are reaffirming our 2021 outlook for adjusted earnings per share of $0.90 to $1.05 per share.
Our guidance reflects a weighted average share count of 36.5 million shares.
And also note that Trilogy is expected to be slightly accretive to earnings per share in the current fiscal year.
Other key modeling assumptions include depreciation and amortization expenses of approximately $23 million and capex of approximately $15 million to $18 million.
capex is expected to trend higher than past years with our renewed focus on investing in our facilities and improving our capacity, along with the addition of Elkhart and Trilogy.
Interest expense is forecasted to be between four and $4.5 million, and the effective tax rate is forecasted to be 26%.
In closing, while the short-term is being pressured by significant inflationary headwinds, our long-term fundamentals are intact.
We continue to manage cost increases through pricing actions, while balancing the potential impact on volume.
Our teams are working extremely hard in this dynamic environment, and we appreciate all of their efforts.
I introduced our long-term road map in October of last year.
In a short period of time, we have made meaningful progress against the current phase of this road map Horizon one and our transformation of Myers is well underway.
We have a shareholder focused, value-creating vision for our company.
I believe we have the right team in place with the right strategic plan and the right focus on execution to make it a reality.
We are off to a strong start, and we continue to execute against our goal of transforming our Material Handling segment into a high-growth business that's a true innovator of engineered plastic solutions, while we also continue to grow and optimize our Distribution segment.
Horizon one of our strategy is rooted in the execution of three areas: number one, self-help initiatives, which includes improvements in purchasing, value-based pricing and SG&A optimization.
number two, organic growth fueled by sales and commercial excellence, and one important component of which is to build out our e-commerce channel.
And number three, bolt-on M&A to build out our existing businesses.
Continued execution across these three elements will propel us into Horizon two, where we plan to use our cash flow and knowledge gained from Horizon one to pursue enterprise level M&A in North America.
The focus on Horizon three will be to pursue enterprise level M&A on a global scale.
This vision and roadmap is supported by our four strategic pillars outlined in slide nine.
Because I have described each pillar in detail on previous calls, I will move to slide 10 and give an update on the recent progress we have made with respect to each.
On the organic growth front, we continue to make headway in implementing our improved commercial structure that standardizes and strengthens our focus in sales, marketing and product management.
We are installing a world-class commercial organization at Myers.
And while this will take some time, we are moving the needle with new additions and new training.
Examples of our areas of focus include improving our capability and processes and account planning and account management and demand planning and in optimizing how we run our supply chain and planning processes.
Additionally, through critical investments in talent and infrastructure, including the summit we held last quarter, we have fortified a stand-alone e-commerce organization, and we are seeing good traction with that group.
On Pillar two, as it relates to M&A, we are very pleased to have closed our second bolt-on acquisition to supplement our plastics business.
Trilogy Plastics is well aligned with our strategic objectives and culture and has an exemplary track record of providing high-quality products to its customers with superior service and on-time delivery.
We are targeting approximately $1 million of annual cost synergies, which we expect to realize by the end of 2022.
Most of this will be through supply chain cost reductions.
This is on top of the $4 million to $6 million of cost synergies we expect from Elkhart.
In addition to these cost synergies, we are seeing growth opportunities and synergies with Elkhart, and we expect the same from Trilogy.
As expected, and as part of our Horizon one approach, as we pursue more acquisitions our organization is learning.
We are fine-tuning our playbook and our capabilities to identify and complete deals as well as to integrate and obtain synergies.
This plan and approach are working.
We are gaining capability and speed as we move forward.
Trilogy was an important step in our journey, and we continue to seek opportunities to acquire complementary businesses, and we currently have numerous actionable targets in our pipeline.
Moving on to operational excellence.
This pillar has been integral to our growth over recent quarters.
In the midst of global supply chain issues, our newly centralized procurement team has done a good job sourcing the necessary raw materials to meet most of our customers' needs.
The last several months have been a challenge on raw material cost and availability.
Jeff Baker and his team in procurement and supply chain have done a nice job on both issues.
Over the past months, we positioned Myers as a value-added solutions provider.
We have made thoughtful decisions on price and supply to ensure we create long-term goodwill and value for our customers as well as all of our stakeholders.
As you may have seen, Myers recently unveiled its new brand identity logo website.
We consider this new visual identity to be much more than aesthetic change, but rather strategic choice to reflect our One Myers vision and reinforce our key values of integrity, optimism, customer focus and a can-do attitude.
We are changing signs, business cards, the website, name badges, all to a single one team mindset.
We are no longer a collection of smaller brands, we are coming together as one company.
We have more critical mass, more capability to serve our customers and our employees.
With that, I will turn to our fourth pillar, which is our high-performance culture.
In order to execute and achieve breakthrough performance, we need to have a high performing culture.
To that end, we recently launched our new Learning Management System, which is comprised of live and online classes to help drive growth, improvement and continuity in our employee base.
We see that this -- we see that LMS will help us win the war on talent.
Our employees see that we are investing in them, in their careers and in their development.
We want our employees to grow here at Myers.
We are creating a culture of employee success within the company.
This includes the type of training and employee development programs in career and succession planning typically found at larger world class companies.
We seek to replicate that here.
Our people are and will be a key competitive advantage.
We are serving our customers in this very fast-paced economic environment, while managing quality and service.
Our long-term strategy is gaining considerable momentum.
It is producing tangible results that we believe will create significant long-term value for our customers, our employees, our communities and our shareholders.

user
q2 adjusted earnings per share $0.29.
myers industries -sees 2021 net sales growth in mid 40% range, with about half due to elkhart and trilogy acquisitions.
sees fy 2021 adjusted earnings per share $0.90 to $1.05.

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