Myers Industries(US:MYE)2020-08-01 21:52Financial Data and Key Metrics Changes - Net sales for Q2 2020 were $118 million, a decrease of 12% compared to Q2 2019 [14] - Adjusted gross profit margin increased to 36%, up from 35% a year ago, due to favorable price-cost margin and lower operating costs [9][14] - Adjusted operating income decreased 14% to $12.3 million, with the adjusted operating income margin remaining flat despite lower sales volume [14][15] - Adjusted diluted earnings per share were $0.23 compared to $0.27 for Q2 2019 [15] - Free cash flow generated during the quarter was $3.7 million, down from $9.4 million last year [19] Business Segment Data and Key Metrics Changes - In the Material Handling segment, net sales decreased by 15.7%, with declines in Food and Beverage, vehicle, and industrial end markets, but adjusted operating income margin increased to 19.5% from 18.3% [16] - The Distribution segment saw a sales decrease of 2.2%, with adjusted operating income dropping to $1.6 million from $3.3 million a year ago, resulting in an adjusted operating income margin of 4.4% compared to 8.7% [17][18] Market Data and Key Metrics Changes - The consumer end market experienced significant sales increases due to higher demand for fuel containers [8] - The auto aftermarket sector showed improved demand as stay-at-home restrictions were lifted, leading to better-than-anticipated sales [8][17] - Replacement tire shipments were down 30% to 35% in Q2, impacting the Distribution segment [48] Company Strategy and Development Direction - The company aims to focus on profitable growth and increasing shareholder value, with plans for disciplined M&A to enhance technological strength in plastics manufacturing [27][28] - Organic growth will be pursued by building out commercial, sales, and marketing capabilities [28] - The company is positioned to capitalize on opportunities in the RV market and other sectors, with a focus on enhancing cross-selling and solutions mindset [35][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's financial strength and ability to meet customer needs during challenging times [11] - The outlook for full-year sales is now anticipated to decline in the mid to high single-digit range, an improvement from previous expectations of a 10% decline [21][25] - The company expects continued gross margin expansion in the Material Handling segment, driven by favorable revenue and cost control [40][42] Other Important Information - Cash on the balance sheet at the end of Q2 was $72 million, with a debt to adjusted EBITDA ratio of 1.2 times [20] - The effective tax rate is anticipated to be 26%, slightly lower than previous guidance of 27% [25] Q&A Session Questions and Answers Question: What metrics are most important in the business and how is capital deployment being considered? - Management emphasized the importance of cash flow and operating income, with a focus on customer satisfaction and order fill rates. Capital allocation remains a priority, with dividends being sacrosanct and continued investment in CapEx [31][32] Question: Can the company make progress on customer-facing objectives during COVID? - Management believes that strong operations and a good balance sheet allow for a focus on growth, with opportunities for organic growth and M&A despite the pandemic [35] Question: What drove the gross margin strength? - Gross margin strength was attributed to favorable price-cost margins and effective cost control in both cost of sales and SG&A [38] Question: Is the weakness in the Distribution segment due to less traffic on the road? - The impact of COVID-19 significantly affected the industry, with replacement tire shipments down and miles driven reduced. However, there is optimism as volume began to return towards the end of Q2 [48] Question: What is the outlook for the RV market? - Management sees strong potential in the RV market, with consumer trends indicating a long-term opportunity for growth, although immediate results may take time [51] Question: What types of companies are being considered for M&A? - The focus is on lower-middle market privately held companies in plastics technologies that can enhance capabilities and deliver better returns, avoiding commodity markets [55]