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Text: I'm Monica, Vinay, Vice President of Investor Relations and Treasurer at Myers Industries.
If you've not yet received a copy of the release, you can access it on our website at www.
It's under the Investor Relations tab.
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'd like to start the call by expressing my sincere appreciation to our entire Myers team for their continued efforts during the pandemic.
Our customers count us to deliver value added high quality products in the safe and timely manner in your efforts remain critical to ensuring that happens.
There were an improvement over the last year and better than we had originally anticipated.
In short, we had a great quarter.
I'm pleased with our results, our direction and our progress.
We still have a lot of work to do, but I'm excited about Myers performance in third quarter.
Sales in our consumer end market increased significantly year-over-year as a result of higher demand for our fuel containers which is due primarily to heightened storm activity.
We're also encouraged by the continued increase in demand that took place in our auto aftermarket business.
In addition, demand for RV Products in our vehicle end market also continued to stay strong.
Our businesses delivered gross margin expansion again this quarter.
Gross profit margin increased 400 basis points, 35.6% for the third quarter of this year.
This was due to solid execution in favorable price cost margin.
As a result of the gross margin expansion, our adjusted operating margin increased 500 basis points to 11.8%.
And our adjusted EBITDA margin increased 370 basis points to 14.8%.
We generated solid free cash flow of $16.2 million during the third quarter and as a result we had $84 million of cash on hand as of September 30th.
We also had $194 million available under our credit facility and our debt to EBITDA ratio was only 1.1 times.
As a result, I feel very comfortable that we have more than enough liquidity and flexibility to execute on our new strategy that I will discuss later in the call.
He is doing a great job and I appreciate all of his efforts and hard work.
Net sales for the third quarter were $132 million, an increase of 5% compared with the third quarter of 2019.
The increase in sales was due primarily to significantly higher fuel container sales in our consumer end-market driven by hurricane activity.
We also increased our auto aftermarket sales both from stronger and market demand in our legacy business and from incremental sales due to the Tuffy acquisition.
Gross profit margin increased 400 basis points to 35.6%.
This was primarily due to higher sales volume and favorable price cost margin.
Also gross profit in 2019 included a $3.5 million charge for estimated product replacement costs.
Our adjusted operating income increased 83%, the $15.6 million for the quarter.
This was the result of higher gross profit margin coupled with lower depreciation and amortization.
Adjusted EBITDA increased 40% to $19.6 million and adjusted EBITDA margin was 14.8%.
Adjusted diluted earnings per share was $0.30 compared with $0.15 for the third quarter of 2019.
In the Material Handling segment, net sales increased 3%.
Sales of fuel containers in our consumer end market were up nearly 40% primarily as a result of increased storm activity.
However, food and beverage market sales were down high single digits due to lower seedbox volume year-over-year.
Sales to our industrial end market decreased mid single digits due to lower sales to industrial distributors, partially offset by higher e-commerce sales.
Sales in our vehicle end market were down double-digits as higher sales to RV customers were more than offset by lower sales to automotive OEMs. Material Handlings adjusted operating income was up 59% to $16.5 million due to higher sales volume, lower depreciation and amortization expense and favorable price cost margin.
Also in 2019 adjusted operating income included a $3.5 million charge for estimated product replacement costs.
In the Distribution segment, sales increased 10% due to $2.9 million of incremental sales from the August 2019 Tuffy acquisition, and higher domestic sales in the legacy business.
Distribution's adjusted operating income increased 41% to $5.1 million primarily as a result of higher sales volume and lower SG&A expenses.
Turning to slide six, I'll review our balance sheet and cash flow.
For the third quarter of 2020, we generated free cash flow of $16.2 million compared with $22.1 million last year.
Working capital as a percent of sales at the end of the third quarter was 9.2%, which was up compared to Q3 of last year but was lower than last quarter.
The year-over-year working capital increase was primarily due to higher accounts receivable and inventory balances due to strong sales in September and strategic investments in inventory that we made earlier in the year to protect our supply chain during the pandemic.
We have already begun reducing inventory balances and expect working capital to return to more normal levels by the end of the year.
Cash on the balance sheet at the end of the third quarter was $84 million and our debt to adjusted EBITDA ratio was 1.1 times, which is consistent with previous quarters.
Before we begin, please note that this outlook is based on current and projected market condition and there is still uncertainty around these projections.
Starting with our consumer end market, the increase in demand during the third quarter was even greater than we had anticipated due to heightened storm activity.
As a result, we now expect a full year sales increase in the double-digit range in this market, which is an improvement from our previous outlook of a mid single-digit increase.
That said, we do not expect the increased demand we experienced in the second and third quarters to continue into the fourth quarter.
Instead, we expect sales volumes in the consumer end market to return to more historical fourth quarter of [Indecipherable].
In our food and beverage end-market, we now anticipate a revenue decline in the mid-teens for the full year of 2020.
Although, we expect feedback sales to increase year-over-year in Q4, we don't expect demand to be as high as we originally forecasted.
And as a result, we expect the seedbox sales will be down for the full year of 2020.
Additionally, annual sales to food processing customers are expected to be lower year-over-year due to impacts from COVID-19 including delayed product trials.
Turning to our vehicle and market while RV demand has improved.
We do not anticipate that the higher sales in that portion of the market will offset the decrease in sales year-over-year, the automotive OEM customers.
Therefore, our outlook for the vehicle end market is unchanged.
With sales expected to be down double-digits for the full year 2020.
In our industrial end market, the soft demand environment and industrial manufacturing and distribution is expected to continue through the remainder of the year.
Signs of end-market improvement that we saw late in the second quarter subsided during the third quarter.
Therefore, we have lowered our industrial end market outlook to be down in the mid-teen percentage range for the full year of 2020.
Finally, in our auto aftermarket, we have seen demand continue to improve and are now forecasting sales to increase in the low single digits, which is an improvement from our previous outlook of a low single-digit decline.
Turning to slide eight, you can see our guidance for 2020.
On a consolidated basis, we now anticipate full year sales to decline in the low to mid single-digit percentage range, which is a slight improvement from our previous expectation of the decline in the mid to high single-digit range.
We continue to expect depreciation and amortization to be approximately $21 million.
Net interest expense to be approximately $4 million.
A diluted share count of approximately $36 million shares.
And capital expenditures to be roughly $15 million.
Lastly, we anticipate that the adjusted effective tax rate will be approximately 26%.
Now I'd like to talk to our new long-term strategy in the strategic pillars we have in place to drive its execution.
We've developed a long-term strategy that's broken down into three discrete horizons.
Each of these horizons builds on the preceding one.
The first phase, which we call Horizon one consists of three approaches, self-help, organic growth and bolt-on M&A.
Self-help will focus on purchasing, on pricing and on SG&A optimization.
In purchasing, as an example, we are centralizing procurement.
In the past, each of our business units purchased their own products.
So we had multiple units buying their own versions of a similar raw material.
We didn't consolidate our buy and leverage.
We're changing that approach.
We're now consolidating purchasing into a single function, and we'll leverage procurement company wide.
As a result, we've greater leverage with our suppliers and expect to lower our cost.
A key objective of self-help is to improve our margins by driving a greater wedge between our raw material costs and our product sales prices, centralized purchasing will address our raw material costs.
On the pricing side, we will be using pricing and data analytics to determine where and how we can improve our pricing.
I believe an enhanced focus on pricing will help identify areas of opportunity for Myers to better capture the value, our products deliver to our customers.
Next is SG&A optimization.
Over the coming months, we will continue to move forward with the one Myers approach, combining key elements of the company together so that were stronger, more efficient and more effective.
Over time, we will reorient some of our SG&A resources, prioritizing sales, product and market management and innovation.
As an example, we will reduce our overhead costs, and we will redeploy these dollars into our sales function, increasing our number of salespeople.
The self-help measures will drive profits and will fund our organic growth and bolt-on M&A opportunities.
On the organic growth side, we will strengthen our commercial capabilities.
We've developed a roadmap to bolster and improve our commercial function.
This has been a key area of focus since I joined Myers.
While we still have a lot to do in this space, I'm encouraged by what I see so far.
Going forward, we will go to market as one company, one Myers.
As one Myers, we will bring solutions that are based on all of our current capabilities, rotational molding, blow molding, injection molding and thermoforming.
Having this full set of capabilities is a differentiator in the market.
Instead of separate sales teams for each business unit, we were just selling one technology.
Now our sales force will bring all of Myers technologies to the market.
This new approach will turbocharge our organic growth efforts.
In addition to the self-help and the one company approach and other big changes, our approach to bolt-on M&A.
We will now focus our efforts in deal flow on building our plastics business.
We will focus on deals that are close to home in terms of technology and markets.
This is a change from the past.
Now when we think about M&A, we plan to build on our current technologies in expertise in plastics molding.
While we are strong in plastics -- we are strong in plastics, we have good brands, and we are Number one or Number two in the areas where we participate.
Going forward, we will embrace our polymers heritage and we use bolt-on M&A to expand our offering and plastics molding.
Speaking of M&A, I would like to provide a short update on the Tuffy acquisition.
It's been just over one year since we purchased Tuffy Manufacturing and combined it with our Myers Tire supply business.
We purchased Tuffy for the right price at the right time.
We integrated smoothly and efficiently and as a result is performed above our expectations.
In order to ensure that we successfully integrate future acquisitions that will likely be larger and more complex than the Tuffy acquisition.
We brought on Dave Basque, who had many carve outs in integrations of down [Indecipherable].
Dave is putting in place a robust process to successfully integrate future acquisitions.
Over the next quarter, I expect us to share proof points on this part of our strategy.
We believe that by executing on the strategy under Horizon one, we can grow Myers to a billion dollars in annual revenue and our target is to be at that run rate by the end of 2023.
Now I would like to speak to the second step, Horizon two.
Horizon two will be built from the profits generated from successful execution of Horizon one.
Horizon two will continue to include the self-help initiatives, organic growth initiatives and bolt-on M&A.
However, in Horizon two, we shift gears and we'll begin executing larger enterprise level acquisitions.
We will continue building and growing in the plastics and polymer space.
We just execute at a greater scale.
We'll continue to focus on specialized value-added products and stay away from commodity products just as we do today.
The experience we gained from completing the bolt-ons and Horizon 1, will prepare us to successfully execute larger acquisitions under Horizon two.
In addition to the enterprise level M&A and Horizon two, we also expect to be in a position to grow in adjacent technologies.
As examples, we may build out the unique capabilities we have in thermoforming or in rubber processing or metal fabrication.
As it stands today, we have a small presence in each of these.
And it appears we have meaningful organic growth opportunities to build them out.
Our long-term vision concludes with Horizon three which is geared around going global.
I can see a path to grow Myers to approximately $2 billion in revenue while largely staying in the United States.
However, to grow beyond that threshold and into Horizon three, we will likely need to expand globally via M&A.
Although, this is a few years off, it's important to have the vision in the direction for the company, in order for Myers to reach its full potential, we will need to go global and expand in own risk attractive countries outside of the United States.
On the organic side of Horizon three, we plan to further build on our Plastics backbone, but also evaluate expansion into other substrates.
An example would be metal substrates and there'll be more to come there.
Our roadmap for execution includes our strategic objective as well as four supporting pillars.
Our strategic objective is to transform the Material Handling segment into a high growth customer centric innovator of engineered plastic solutions.
While at the same time, we continue to optimize and grow the distribution segment.
Myers is in a great position.
We have excellent technologies and products in the material handling side and we have deep industry knowledge and experience in a strong foundation on the distribution side.
Make no mistake, our company's future is bright, our runway is long and I can't think of anywhere else I would rather be.
We have four pillars that are simple and clear and we'll drive execution.
They are organic growth, strategic M&A, operational excellence, and high performing culture.
These four pillars are the cornerstones of Myers transformation and will ensure we successfully deliver the goals and objectives of Horizon one.
The first pillar focuses on organic growth and we will address four areas, sales and commercial excellence, innovation and new product development, sustainability, and e-commerce.
These four areas are clear priorities of Myers and are the primary levers to drive organic growth.
Speaking of sustainability, we recently announced, we've joined the alliance and plastic waste.
A global non-profit organization committed to ending plastic waste in the environment.
Our focus on sustainability will help drive innovation and our long-term growth.
We are proud to be a part of the alliance and look forward to helping shape future projects that recover create value from and ultimately eliminate plastic waste.
Our second pillar strategic M&A is geared around bolt-on opportunities that build on our Plastics franchise.
Part of this effort is our integration playbook that will ensure a world-class approach to acquisition integration.
The 3rd pillar operational excellence is part of the Myers D&A, part of the Myers foundation and we will build on it.
We will continue to have a mindset of continuous improvement and we will build out the functions of pricing, purchasing, and sales and market management into our core capabilities.
The 4th and final pillar is the heart of the company, our culture.
We will build a high performance mindset in culture.
A key tenet of our culture will be our focus on safety.
We have a good safety record but must work to get better every day.
Talent development will be a priority as well.
We will develop our talent in-house, through the creation of continuing education, learning academies and on the job training.
We can achieve greatness, without being an employment -- employer of choice.
To that end, we must build our culture in three important areas, inclusion, servant leadership and community involvement.
I'll close here and I'll share with you my confidence and excitement on our new direction.
We have a strong plastics business with a broad suite of technologies and expertise.
We are now focused on building this engine in growing its scale organically and through M&A.
In addition, we have a well-regarded industry leading auto aftermarket distribution business with a promising outlook.
I could not be more excited to lead this company today and into the future.
Duane, we're now ready to take questions.

user
compname reports q3 adjusted earnings per share $0.30 from continuing operations.
q3 adjusted earnings per share $0.30 from continuing operations.
revised its outlook for 2020 revenue.
now expects full-year revenue to decline in low-to-mid single digits.
does not expect events that drove sales in consumer end market to recur in q4.

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