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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.
myersindustries.com, 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.
We continued our growth trajectory during the quarter, and we made further progress on our long-term strategy despite a difficult macro environment that's impacting many businesses around the world.
During the quarter, we saw continued strong demand from our material handling and distribution customers.
This demand, combined with meaningful contributions from our recent acquisitions, drove the company to $200 million in net sales and more than 50% revenue growth for a second consecutive quarter.
The company's top line was the strongest it has been in many years.
On organic basis, sales grew 20% compared to the prior year period which marks three consecutive quarters of 20% or more organic growth.
We are beginning to see the benefit of our investments in our sales force and sales training and an improved commercial focus across the company.
While our top line performance was strong, we did see macroeconomic headwinds again this quarter, which impacted our margins.
Input costs climbed higher due to increasing raw material costs, and tightness in the labor market impacted labor costs, both of these drove margin compression during the period.
The negative impacts of labor were due to overtime pay, higher wages and in some cases, the lack of labor, which inhibited us from making or shipping certain orders.
While we believe inflationary labor and supply chain headwinds will likely persist for the next several quarters, we are taking numerous actions to mitigate possible impacts on our business.
These proactive steps include improvements in our sales and operations planning process, a reinvigorated sales force and the addition of a pricing excellence leader and team.
We're also working hard to debottleneck and automate our plants, while we continue to secure the raw materials necessary to ensure that we meet the volume needs of our customers.
We remain confident in our ability to manage price, volume and cost.
And as such, we are reaffirming our previous 2021 adjusted earnings per share guidance of $0.90 to $1.05 per share.
Myers demonstrated growth is meaningful.
Our company is becoming a growth story.
A new Myers is here.
We're pleased with the growth to date, and we expect this new growth mindset to be a sustained theme and focus at Myers Industries.
In the short term, however, we continue to see an inflationary environment that is compounded by labor shortages and supply chain issues.
To manage through it, we made a few near-term supply oriented decisions that consume cash in the third quarter.
These decisions were made to ensure we continue our high service level to our customers, and we expect cash flow trends to normalize in the fourth quarter.
Let's begin with a review of our third quarter financial results on Slide four.
Net sales were up $68 million, an increase of 51%.
Excluding the impact of the Elkhart and Trilogy acquisitions, organic net sales increased 20% driven by price, which contributed 13%.
Higher volume mix contributed 7%.
Sales increased in all key end markets in both Materials Handling and Distribution segments.
Adjusted gross profit increased $7.2 million, while gross margin decreased from 35.6% in the prior year to 27.2% in the third quarter.
Gross margin was negatively impacted by higher raw material costs and higher labor costs which were not fully offset by pricing actions, has led to an unfavorable price-to-cost relationship.
Included in cost of sales was a $1.6 million increase related to the LIFO inventory reserve.
Adjusted operating income decreased $3.1 million to $12.5 million due to increased SG&A, driven by the addition of Elkhart and Trilogy along with higher compensation cost and higher professional fees.
Adjusted SG&A as a percentage of sales decreased to 20.9% in the third quarter compared to 23.8% in the prior year as we are experiencing the benefits of our overall larger scale on our infrastructure.
We're pleased with the investments we are making in support of our One Myers work strategy are yielding positive results.
Adjusted EBITDA was $17.3 million, a decrease of $2.3 million compared to the prior year.
Adjusted EBITDA margin was 8.6%.
And lastly, adjusted earnings per share was $0.23, a decrease of $0.07 or 23% compared to the prior year.
Turning now to Slide five for an overview of segment performance for the quarter.
Beginning with Material Handling, net sales increased $63 million or 73%, including the Elkhart and Trilogy acquisition.
On an organic basis, Material Handling net sales increased 26%, driven by favorable price of 18%.
Strong volume mix contributed another 7% and FX, 1%.
Organic net sales increased in the vehicle, industrial and food and beverage end markets.
You may recall that our consumer end market was up significantly last year, driven by increased storm activity, which led to higher demand for our fuel containers.
Material Handling adjusted operating income decreased $1.3 million or 8% to $15.2 million.
The decrease was driven by an unfavorable price-to-cost relationship resulting from escalating raw materials and labor costs, which were not fully offset by pricing actions.
Additionally, SG&A expenses increased primarily due to the Elkhart and Trilogy acquisition, higher compensation costs, travel costs and professional fees.
In the Distribution segment, sales increased $5 million or 11%.
Volume mix contributed 6%, resulting from increases across both equipment and supplies and price contributed 5%.
Distribution's adjusted operating income decreased $700,000 to $4.4 million due to an increase in SG&A expenses, which were more than offset higher volume mix and favorable price-to-cost relationship.
Turning to Slide six.
Working capital timing negatively impacted our cash flow for the quarter.
Free cash flow was negative $13.8 million compared with positive free cash flow of $16.2 million for the third quarter of 2020.
Cash from operations decreased in the quarter due to increases in working capital, driven by a $14 million and an $8 million increase in accounts receivable and inventory, respectively, combined with a $3 million decrease in trade accounts payable.
Additionally, capital expenditures were $6 million in the quarter.
Sales were more weighted in the back half of the quarter, contributing to the elevated accounts receivable balance.
In addition to higher raw material costs, our focus on meeting our customers' needs also contributed to higher inventory levels.
Year-to-date free cash flow was essentially flat, down $700,000.
Cash on hand at quarter end was $15 million.
We expect working capital to turn favorable in the fourth quarter.
Overall, our balance sheet remains strong and gives us the flexibility needed to execute on our long-term growth strategy.
As a reminder, on July 30, we utilized our revolving credit facility to finance the Trilogy Plastics acquisition.
We ended the third quarter with leverage at 1.8 times.
On Slide seven, turning to our outlook for fiscal year 2021.
We anticipate net sales to increase in the mid- to high 40% range attributed to both organic growth and acquisitions.
Our previous sales guidance was in the mid-40% range.
A little more than half of the growth for the year is expected to come from the Elkhart and Trilogy acquisition.
Elkhart's annual net sales at the time of acquisition were approximately $100 million and Trilogy's annual net sales were roughly $35 million.
While rising input costs and labor pressures continue to impact our profit growth and margins during the third quarter, we are seeing signs of resin cost easing and are cautiously optimistic it will begin to decline as we move through the fourth quarter.
This, combined with additional pricing actions affected in the fourth quarter should result in a favorable price-to-cost relationship for the quarter.
Taking these considerations into account, 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 the addition of the newly acquired Trilogy business.
As a reminder, Trilogy is expected to be only slightly accretive to earnings per share in the current fiscal year.
Our key modeling assumptions include depreciation and amortization expenses of approximately $22 million and capex of approximately $16 million to $19 million, up slightly from our previous capex guidance of $15 million to $18 million.
capex is expected to trend higher than past years with our renewed focus of investing in our facilities and improving our capacity along with the addition of Elkhart and Trilogy.
The effective tax rate is forecast to approximate 26%.
In closing, while the short term continues to be impacted by macroeconomic factors, our fundamentals remain intact.
We are extremely pleased with the demand for our portfolio of products along with our ability to pass along the value proposition they bring through pricing actions.
We are making solid progress on our One Myers initiative, which Mike will share with you momentarily.
Starting on Slide eight.
It's been a little more than a year since I first introduced our long-term road map and broader One Myers strategy.
I'm very proud of the considerable progress we've made to date.
I have a lot of passion for this company, our company, I see the upside and the opportunity every day.
We're currently well into the middle innings on Horizon one of our transformation.
As a company, we are aligned and centered on our true north, our mission, which is to transform our Material Handling segment into a high-growth business as the true innovator of engineered plastic solutions while we also continue to grow and optimize our Distribution segment.
As I outlined in the past, Horizon one is built on driving self-help initiatives to improve profitability and then using these proceeds to fund organic growth through sales and commercial excellence and bolt-on programmatic M&A.
We've made meaningful progress across each of these areas.
As we continue to execute the remainder of Horizon 1, we'll have the necessary foundation, knowledge and track record to move into Horizon two.
We will continue with the self-help and organic growth efforts, but will use the enterprise level M&A to create shareholder value.
After the completion of Horizon two, we will transition into Horizon three, where we approach M&A on more of a global scale.
Our One Myers vision and the associated transformation of our business is rooted in our ultimate goal of maximizing long-term value creation for our shareholders, we believe, will be achieved as we execute on this plan.
Slide nine covers the four strategic pillars that support our One Myers vision.
My approach is to be consistent, almost broadly consistent on the pillars and on the levers and the areas of focus we're using to drive our transformation.
Because they are the bedrock, the foundation of our transformation, we must maintain consistency in our approach in order to provide direction to our people and ensure execution success.
These pillars and work tracks are straightforward and not terribly complicated.
Our success comes from our relentless and dogged pursuit of their execution.
Since I've covered these pillars extensively in the past, I'll move on to Slide 10 to update you on the progress we've made across each of these as it relates to our first horizon.
We've displayed an outstanding growth -- organic growth trajectory over the last several quarters and believe we are taking the right action to help sustain this momentum.
We are building a world-class commercial organization at Myers through the continued addition of strong talent at the middle level and the new and rejuvenated marketing, product management and sales structure we put in place.
We've also invested in sales training and improving our sales processes to drive organic growth, customer intimacy and pricing to value not to cost.
Additionally, our investments in e-commerce continue to take flight.
E-commerce is showing encouraging results with year-to-date sales up approximately 30%.
We've learned to use e-commerce as a flywheel for volume and have found that it is an excellent channel.
We're able to accept or decline business that helps us best optimize our assets capabilities.
This flywheel approach will become more impactful as we get better at S&OP and improve how we balance our growing demand across our facilities.
Moving on to M&A.
Growth via acquisition is and will continue to be an integral part of our One Myers strategy.
We closed on our acquisition of Trilogy Plastics earlier this quarter and are very excited about its prospects.
Trilogy enhances our ability to manufacture highly engineered and tight tolerance specialty products.
We're already taking some of the learnings and best practices from Trilogy into our plants that were legacy Ameri-Kart or Elkhart Plastics.
So far, three months in, the integration of Trilogy is going well and is right in line with our expectations.
As a reminder, the integration of Elkhart has also gone well, helping us better serve our customers and capture growth synergies and $4 million to $6 million of cost synergies, both of which exceed expectations.
From a big picture perspective, through our two acquisitions over the last year, we are making progress on developing an effective framework for selecting high-quality companies that complement our businesses.
And as equally important, we're on our way to developing a strong, repeatable playbook and processes to ensure a successful integration of these acquired companies.
We have lost connection with our speakers.
We will be with you in just a second.
We now have the team back on the line.
I will hand back over to Mike McGaugh.
Sorry about that, folks.
And I'm not exactly sure where it dropped, but I'll pick up around e-commerce.
So that's a great place, a great thing.
So additionally, our investments in e-commerce continue to take flight.
E-commerce is showing encouraging results with year-to-date sales up approximately 30%.
We've learned to use e-commerce as a flywheel for volume and found that it's an excellent channel.
We're able to accept to define business that helps us best optimize our asset capabilities.
This flywheel approach will become more impactful as we get better at S&OP and improve how we balance our growing demand across our facilities.
Moving on to M&A.
Growth via acquisition is and will continue to be an integral part of our One Myers strategy.
We closed on our acquisition of Trilogy Plastics earlier this quarter and are very excited about its prospects.
Trilogy enhances our ability to manufacture highly engineered and tight tolerance specialty products.
We're already taking some of the learnings and best practices from Trilogy into our plants that were legacy Ameri-Kart or Elkhart Plastics.
So far, three months in, the integration of Trilogy is going well and is right in line with our expectations.
And as a reminder, the integration of Elkhart has also gone well, helping us better serve our customers and capture growth synergies and $4 million to $6 million of cost synergies, both of which exceeded our expectations.
From a big picture perspective, through our two acquisitions over the last year, we're making progress on developing an effective framework for selecting high-quality companies.
They complement our business and is equally important, we are on our way to developing a strong repeatable playbook and processes to ensure integration -- successful integration of these acquired companies.
The plastics molding industry is quite fragmented, and we believe that acquiring specific technologies, niches and best practices is a highly effective way to create value for all of our stakeholder groups.
We focus on acquiring founder-owned companies with similar cultures and values to Myers and we worked with the management teams to invest and grow these businesses through improved processes, additional capital investment, retaining and incentivizing key people and collaborating and optimizing across all of our facilities.
Paying a fair price, not overpaying, for these acquisitions is also an important part of the equation.
Our M&A strategy has proven to be successful so far, and we will continue to fine-tune it as we believe it will serve us well through the remainder of Horizon one as we pursue large acquisitions in Horizon two and three.
Moving on to operational excellence.
This is an area that's been crucial during the last few quarters where we were faced with multiple supply chain headaches.
Our purchasing and supply chain teams have done a great job in securing raw materials and managing our supply chain so that we are able to consistently deliver for our customers during the quarter.
On a relative basis to our competitors, our service levels remain high.
This creates value for our customers.
We believe this focus on partnering with our customers on service delivery and on a fair approach to pricing will pay dividends over the medium and long term.
I'd like to speak about our ability to manufacture and get product out the door.
As I mentioned earlier, we've pursued new approaches to staffing and providing labor to our plants and are encouraged by our results.
We are providing a safe and well-paying environment for our workers and have been able to source some workers from agriculture markets and second chance work programs.
This strategy was key to enabling our third quarter growth.
In addition to getting more creative with our approach to labor, we're also investing in automating select operations within our facilities.
We have several engineering teams driving automation across Myers, sharing best practices, and we're investing capex in the space and continue to do so, likely at an accelerated pace as we not see the issue of labor or lack of it going away.
An important part of operational excellence is pricing excellence.
And we've hired and installed a small but effective team that has led the space at other chemical and plastics companies and instituting this capability at Myers.
The team is accelerating our focus on value capture through pricing.
We announced additional price increases in September and October and have begun implementing value-based pricing rather than cost-plus pricing.
This is a change in approach, and it will take some time to implement, but it's an important lever to deliver value for our stakeholder groups.
Now I'll turn to our fourth pillar before giving my closing remarks.
Our high-performance culture is a key enabler of our long-term success.
Having a true north, having alignment on our values and our mission is critical for Myers to be successful.
We are well on our way on this journey.
We're seeing meaningful traction with our recently launched learning management system, which allows employees to take online classes to help develop their capabilities and skills within the company.
Our desire is to develop our employees and promote from within.
Doing this inspires loyalty, improves our company's performance, improves our stability and continuity of our employee base, and it also decreases cost.
We continue to invest in and build this tool, and we believe it will help us in the for talent.
An important part of our culture and value is based on servant leadership.
I believe on this approach, and I'm committed to instilling it at Myers.
The deployment of our certain leadership training is underway and 50 of our leaders have already completed this training and are applying it in their work lives.
We have an additional 50 going through the program in early 2022.
One final point is our mindset on inclusion.
At our senior manager levels and above, we've increased our hiring and promotion of female minority candidates as a percent of total hirings by more than 100% versus past years.
While we're not done yet, we're making progress.
I'd like to close by letting you know that last week, our management and our Board of Directors held a multi-day retreat to review our strategy in our short-, medium- and long-term goals and objectives.
The alignment and collaboration are remarkable and helpful.
We're putting the people and the processes in place to drive the company's transformation.
We have people in the right roles who know what to do, have done it many times before and are willing to work hard and get their hands dirty to deliver results.
We have a clear and straightforward road map to create meaningful shareholder value, and we have the team and the processes to deliver.
We'll navigate the short-term inflationary and supply chain bumps while we remain calm, disciplined and focused on the longer term.
I'm excited for our future, and I appreciate your interest in our company.

user
q3 adjusted earnings per share $0.23.
updated fy21 net sales growth in mid-to-high 40% range.
sees fy21 adjusted earnings per share in the range of $0.90 to $1.05.

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