Myers Industries(US:MYE)2022-10-30 12:05Financial Data and Key Metrics Changes - The company reported a net sales increase of 14% year-over-year, reaching $228.1 million, marking the eighth consecutive quarter of double-digit growth [8][10] - Adjusted earnings per share (EPS) rose by 78% to $0.41, while adjusted EBITDA increased by 57% to $27.2 million [9][13] - Adjusted gross profit increased by 32% to $72 million, with adjusted gross margin expanding by 430 basis points to 31.5% [12][13] Business Line Data and Key Metrics Changes - In the Material Handling segment, net sales increased by 4%, with organic net sales growth of 2% after excluding acquisitions [14] - The Distribution segment saw a significant net sales increase of 44%, with organic net sales growing by 11% [16] - Adjusted operating income for the Material Handling segment rose by 59% to $24 million, while the Distribution segment's adjusted operating income increased by 18% to $5.2 million [15][16] Market Data and Key Metrics Changes - Sales in agriculture, auto aftermarket, and industrial end-markets showed healthy momentum, offsetting weaker demand in consumer and recreational vehicle markets [8] - The consumer market experienced a decline of 27% year-over-year, attributed to inflation affecting consumer discretionary spending [40] Company Strategy and Development Direction - The company is focused on its three Horizon strategy, emphasizing self-help, organic growth, and bolt-on M&A, with significant progress noted in operational excellence and commercial capabilities [22][24] - The company plans to transition to Horizon 2, which will focus on larger, potentially transformational acquisitions, while continuing to build scale through smaller acquisitions [25][34] - The strategy includes a focus on durable plastics with competitive moats, targeting large-format products that are difficult to replicate [55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience despite macroeconomic challenges, highlighting strong performance in key segments [34] - The outlook for 2023 anticipates continued strength in agriculture, construction, and industrial markets, while consumer and recreational vehicle segments may remain problematic [44][52] - The company raised its full-year adjusted EPS guidance to a range of $1.50 to $1.70, reflecting confidence in ongoing performance [19] Other Important Information - Free cash flow improved to $9.8 million compared to negative cash flow of $13.8 million in the prior year [18] - Capital expenditures for the quarter were $6.7 million, with a strong balance sheet indicated by a debt-to-adjusted EBITDA ratio of 1x [19] Q&A Session Summary Question: Long-term vision and Horizon 2 focus - Management clarified that Horizon 2 will focus on domestic transformational deals and global expansion opportunities, with a strong emphasis on durable plastics [37][38] Question: Organic growth slowdown - The slowdown in organic growth was attributed to a significant decline in the consumer market and inflation affecting discretionary spending [39][40] Question: Margin sustainability - Management indicated that while margins are expected to remain strong, lower sales volume could impact overall margins in the fourth quarter [41][43] Question: Pricing strategy amidst cost fluctuations - The company believes it can maintain pricing due to its market position and the value provided to customers, despite some competitive pressures [49] Question: Plant utilization and footprint - Management is evaluating the need for potential asset consolidations and expansion into the Southern U.S. to enhance market presence [50] Question: End market strength - Continued strength is expected in auto and industrial markets, while consumer discretionary spending remains a concern [51][52] Question: Definition of competitive moats - Competitive moats are defined by the difficulty of replicating manufacturing processes and the ability to produce large-format products that are less susceptible to offshore competition [54][55] Question: Nearshoring trend - Management noted an increase in requests for quotes from customers seeking to source products closer to home due to supply chain concerns [56]