Earnings Call Transcript - MYE Q1 2025

Operator, Operator

Hello and welcome to the Myers 2025 First Quarter Results. My name is Carla, and I will be coordinating your call today. I would now like to turn it over to Meghan Beringer, Senior Director of Investor Relations at Myers Industries to begin. Meghan, please go ahead when you're ready.

Meghan Beringer, Senior Director of Investor Relations

Thank you. Good morning, everyone, and thank you for joining Myers conference call to review 2025 first quarter results. I'm Meghan Beringer, Senior Director of Investor Relations at Myers Industries. Joining me today are Aaron Schapper, President and Chief Executive Officer; Grant Fitz, Executive Vice President and Chief Financial Officer; and Dan Hoehn, Vice President, Corporate Controller. After the prepared remarks, we will host a question-and-answer session. Earlier this morning, we issued a press release outlining our first quarter financial results. We have also posted a presentation to accompany today's prepared remarks. Both are available under the Investor Relations tab at www.myersindustries.com. This call is being webcasted on our website and will be archived along with the transcript of the call shortly after this event. Please turn to Slide 3 of the presentation for our safe harbor disclosures. I would like to remind you that we may make some forward-looking statements during this call. 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 are set forth in the company's periodic SEC filings. Also, please be advised that certain non-GAAP financial measures such as adjusted gross profit, adjusted operating income, adjusted EBITDA, and adjusted earnings per share may be discussed on this call. Now, please turn to Slide 5 of our presentation, as I will now turn the call over to Aaron.

Aaron Schapper, President & CEO

Thank you, Meghan. Good morning everyone and thank you for joining us. On today's call, I will begin by reviewing first quarter highlights. Then, I'll provide an update on our focused transformation, our progress since our fourth quarter earnings call, and our unique characteristics that define Myers. Following my comments, Grant will provide a detailed review of the first quarter financials, followed by Dan, who will review our outlook for the year. First quarter revenue was flat year-over-year. Growth in Material Handling was led by the contribution of our Signature acquisition and industrial growth for military products, offset by lingering softness in our Distribution segment. Margins improved as we did a nice job of controlling costs. SG&A, which is the focus of our 2025 cost savings program, was lower as a percent of sales, resulting in an increase in EPS. I'm pleased with the team's focus and performance, and I am reassured by the solid start to the year. At the same time, there are clear opportunities to improve, and I am confident that we are on the right path to elevate our performance. Before moving on, I would like to address tariffs as they pertain to Myers directly. Please turn to Slide 6. Our supply chain is predominantly based in the U.S. Most of the materials we purchase are from U.S. suppliers. Fifteen of our sixteen manufacturing plants are here in the U.S. More than 90% of our 2025 Material Handling revenue is expected to be manufactured in the U.S. Further, the remaining 10% of revenue from this segment is currently protected by the USMCA and military exemptions. For Distribution, less than 15% of our products are sourced from China. We plan to use pricing to offset tariff costs and have secured secondary and tertiary suppliers to mitigate the impact to our customers. This predominantly domestic-based supply chain should provide resilience to tariff-driven disruptions. As a result, we expect minimal direct impact from the current tariffs. We are also positioned to provide options for supply chain resiliency to our customers to help them mitigate these disruptions. Of course, this is a dynamic situation, and we continue to closely monitor any impact on factors that would alter end market demand trends. We stand ready to execute across a wide variety of scenarios should we find ourselves in an altered landscape than we are currently expecting. Turning to Slide 7. During our fourth quarter earnings call, I introduced our Focused Transformation program. We are developing this plan to change course and accelerate our timeline to deliver more consistent and reliable results. During my conversation with employees, I'm encouraged with how they are embracing the positive cultural shift to elevate our performance. Let's review the four objectives and the early progress that we are achieving. The first objective is to establish a culture of execution and accountability to drive performance. We have adjusted our core values to include deliver results and continuous improvement, emphasizing a culture of lean management supported by clear, efficient processes. We have aligned incentive plans with individual business unit performance while retaining overall executive accountability to shareholders for corporate targets. These changes provide proper incentives to demonstrate our core values, motivating employees to achieve organic growth and profitability in each of our businesses. I believe these actions will drive cultural change, igniting a fire in our employees and validating the opportunity that attracted me to Myers. Our second objective is to create clear strategies, including action plans and specific KPIs, to improve the profitability of our entire portfolio. We are off to a rapid start. Over the past few weeks, we completed a series of employee workshops to review and evaluate the businesses in our portfolio, developing strategies for each based on their characteristics. Some of our businesses serve high-growth markets. We will invest to support these businesses to continually drive organic growth. We have other businesses serving lower-growth markets that do not require significant investments but generate strong cash flow to fund high-growth businesses and fortify our ability to return cash to shareholders. Finally, we have a few businesses that are not performing at the level we expect. We are developing and implementing plans to improve these businesses within a reasonable time frame. I am optimistic that we are on the right path to drive improved performance across our entire portfolio. We plan to announce our updated long-term strategy for each business by the end of this year after we complete the necessary foundational work. Our third objective is to deliver consistent and reliable results by effectively controlling what we can control. The first step that we announced during our last quarterly update is to deliver annualized cost savings of $20 million by year-end 2025 primarily in SG&A to reduce costs while enhancing operational efficiency. From my experience in managing business in dynamic markets, optimizing cost structure is vital during challenging markets and rewarding in upswings. The workshops I mentioned earlier were instrumental in identifying specific actions to drive efficiencies into the organization to build a foundation for long-term sustainable growth. We overachieved our Signature synergy targets, delivering $12 million in cost synergies against our $8 million target. We are confident in our continued path to our $20 million annualized cost savings commitment. Our fourth and final objective is to optimize cash flow and support disciplined capital allocation deployment. Last quarter, we launched a new $10 million share repurchase plan. In addition, we will continue to invest in organic growth, maintaining our CapEx target of around 3% of sales and focusing on high-growth opportunities that deliver superior returns. It is early days on our Focused Transformation, but I'm pleased with the initial pace of progress and confident in our team's ability to deliver improved financial results from the changes we are making. Our mission is to provide products that protect the world from the ground up. I'd like to discuss two examples of how we do this, beginning on Slide 8. Many large stadiums with turf playing surfaces would like to expand the functionality of their properties and increase the revenue opportunity. This creates a challenge to properly protect the playing surface to eliminate damage that could lead to player injuries. In addition, the cost and time of converting the playing surface limits the revenue-generating potential. Our OmniDeck flooring system provides a differentiated solution. It is strong and durable, protecting the surface from machinery, staging, equipment, and foot traffic. It is lightweight, reducing the time and cost to repurpose the facility. As a result, the integrity of the playing surface remains intact. We have seen great success from our customers with this product. I invite you to view the video linked in our presentation to see a testimonial from our newest customer, SoFi Stadium. Another example of our mission in action is shown on Slide 9, Protecting our Troops. Historically, our militaries used wood or steel packaging for ammunition. These are heavy, increasing the cost of transport and the stress on soldiers that carry these containers in the field. Our Scepter solution provides lighter, better, safer, and battle-proven packaging for transporting ammunition for the defense industry. Delivering a 41% weight savings, soldiers' injuries are reduced, keeping them healthier to train and accomplish their primary mission. In addition, the transportation costs are reduced, enabling the military to allocate resources to other critical areas. We are so proud to support, serve, and protect our troops. These examples highlight who we are as a company and how we deliver value to our customers. Since our last earnings call, we have made progress on achieving our commitments. We have acted quickly, starting the journey to create a culture built on accountability that fulfills our commitments and delivers results with a continuous improvement mindset. Building on this momentum, we are moving forward with purpose, transforming Myers with speed, agility, urgency, and acting with integrity. I will continue to meet with customers and investors, listening to your feedback to ensure we are creating value for you. With that, I will turn the call over to Grant to discuss our first quarter results. As previously announced, Grant will be stepping down as our CFO tomorrow. I wish to thank him publicly on behalf of the entire company. Although our time working together was short, I recognize the contribution he has made here since joining the organization, and I'm grateful for the help he has provided to me during my transition. He will be missed, and we wish him all the best. Dan Hoehn, Vice President, Corporate Controller, will serve as Interim CFO while we undergo a formal search, which has been launched to identify our next finance chief. Over to you, Grant.

Grant Fitz, Executive Vice President & CFO

Thank you, Aaron, for those kind words and good morning everyone. I am proud of what we have accomplished during my time at Myers, and I truly believe the organization is heading in the right direction as our Focused Transformation program is already showing signs of improvement. I look forward to following Myers' future success. Turning to our financial results on Slide 11. First quarter net sales of $206.8 million were essentially flat year-over-year as growth in Material Handling, led by the impact of our Signature acquisition, was offset by lingering softness in our Distribution segment. As a reminder, Signature was closed on February 8 of last year. This will be the last quarter we will call out its inorganic contribution to year-over-year performance. We expanded adjusted gross margin by 80 basis points to 33.5%, driven largely by the acquisition of Signature and favorable product mix. Adjusted operating income improved to $18.7 million, with the margin improving by 100 basis points to 9% of sales. We also reduced SG&A expenses for the quarter. We will begin to see our Focused Transformation work deliver further SG&A run rate savings next quarter and through the balance of the year. Adjusted EBITDA margin also improved, expanding 170 basis points. Diluted adjusted earnings per share were $0.22 compared to $0.21 in 2024 on improved operating income, partially offset by higher net interest expense. Turning to Slide 12. Net sales for Material Handling increased 3.6% compared to the prior year, primarily due to the contribution from the Signature acquisition. Industrial sales were stronger, primarily for military applications. We saw cyclical softness in Food & Beverage for seed box demand. Material Handling's adjusted EBITDA increased 11.7% to $36.3 million, resulting in a 160 basis point increase in adjusted EBITDA margin to 23%. These improvements were attributed largely to our increased Signature product mix and our ability to effectively reduce SG&A and manufacturing costs. Distribution net sales decreased 10.3% on lower volume and pricing. Adjusted EBITDA decreased to $0.5 million, primarily due to lower gross margin, partially offset by lower SG&A due to an improved cost structure resulting from our Distribution center consolidation. Turning to Slide 13. Operating cash flow was lower this quarter on an increase in working capital due to accounts receivable timing and a build in inventory as we took some proactive action before the tariff details were announced. We expect working capital to improve in future quarters. We allocated $8.1 million to CapEx as we continue to invest in organic growth. We maintained total liquidity of $267 million, including $231.7 million of availability under our current revolving credit facility and cash on hand of $35.3 million, providing us with additional flexibility to support our capital allocation priorities. Please turn to Slide 14. As Aaron mentioned, we repurchased $1 million in shares under our share repurchase program announced last quarter. There remains $9 million under this authorization, and we plan to continue making opportunistic purchases to complement our ongoing dividend as we return cash to shareholders. Debt was essentially flat for the quarter with our net leverage ratio at 2.8 times. As mentioned before, we are targeting a ratio of 1.5 to 2.5 times. At this time, I will now turn the call over to Dan to review our current 2025 outlook. Dan?

Dan Hoehn, Vice President, Corporate Controller

Thank you, Grant, and let me also wish you well. As we did during our last quarterly update, we are sharing some high-level qualitative expectations for the year, which are shown on Slide 16. We see both risks and opportunities for the businesses, and we'll continue to monitor end market conditions for impacts from tariffs or other factors that may influence demand trends. Let me review our expectations by market. Industrial should continue with moderate growth driven by global inventory replenishment for military applications and to a lesser extent for bulk container and organizational products. In Infrastructure, ongoing strong project spending supported by material conversion from wood matting should continue to support strong growth. We now expect the vehicle end market, which includes RV and marine, to be down as a result of economic uncertainty driven by developing tariff impacts. We previously expected this end market to be stable to down. In Consumer, we anticipate stable sales of fuel containers and an expected return to a more normalized storm season. Our Food & Beverage end market, including Agriculture, is projected to be stable. Automotive Aftermarket Distribution is expected to be slightly down. We are working to stabilize this business as we improve our cost structure, sales territory alignment, and digital sales strategy. We will continue to look for opportunities to expand our market presence and deliver solutions to our customers. At the same time, we expect financial results to improve as we make progress on our Focused Transformation.

Aaron Schapper, President & CEO

Thank you, Dan. Our team at Myers is aware of the significant work that needs to take place to achieve our potential. We are moving forward with urgency to execute our Focused Transformation, which includes supporting and growing Myers' uniquely differentiated products that protect the world from the ground up. Rightsizing the organization to optimize our cost structure and support our growth initiatives with a continuous improvement mindset will enable us to work smarter and more efficiently, and supporting a balanced capital allocation framework that invests in growth while returning cash to shareholders. I continue to be excited about the opportunities to improve performance and create value for our customers, employees, and shareholders. With that, I'd like to turn the call over to the operator for questions.

Operator, Operator

Our first question comes from Christian Zyla with KeyCorp.

Christian Zyla, Analyst

Good morning everyone. Grant, it has been wonderful working with you. We wish you all the best in the future. First question for me. Just generally, thanks for the additional tariff detail on the Distribution business. If I recall, there are a couple of facilities in Central America. Are those subject to tariffs? And then how price-sensitive are your customers here if you raise prices to offset the tariff costs you mentioned? Would you expect to see a volume offset in any of your business?

Dan Hoehn, Vice President, Corporate Controller

So the Central America piece is a relatively small part of the Distribution business. So, while there is some impact of tariffs like there is in the rest of the world, we don't expect that to have a material effect on Myers. From a price-sensitive standpoint, of course, our customers are always looking for the best value that we can get, and it's our job to make a profit on products that we're selling. So, if we need to push price, we will.

Aaron Schapper, President & CEO

Yes. I would just add too, Christian, on that is that we do have, we talked a little bit in the opening comments that we are looking as well for alternative suppliers where we think that there's some value to do that. And so, I think overall, echoing on Dan's comments, we feel we're in a pretty good position, and we don't see, particularly in the Distribution business, having a significantly different footprint of supply than what we would see with other competitors, and we feel we're in a pretty good position working with our suppliers and also leveraging price as needed.

Christian Zyla, Analyst

Got it. Understood. And then on free cash flow for the quarter, can you just walk through why that was so low year-over-year? And then just bigger picture, correct me if I'm wrong, but history suggests $15 million to $20 million of free cash flow per quarter should be achievable for you guys. Is that how you think about the business? Or just any broader thoughts on that?

Grant Fitz, Executive Vice President & CFO

Sure, Christian, this is Grant. I'll take this one. I think Q1 was a little bit different than what we've typically seen within Myers. As you know, we typically have some very good operating cash flow with the business. And essentially, we had two things that occurred in this quarter. The first one was that we had a very strong March, particularly with Signature and our Scepter business. And so, we just have some timing of accounts receivable on when those will actually be collected as those sales were driven more towards the end of the month. And then the second thing is that as we were looking at the potential tariff impacts, we also looked at doing some opportunistic buys on inventory ahead of potential tariffs, and so those two items really created a situation where we have a lower than typical historic free cash flow for the business. We do anticipate that's going to recover throughout the year as we see this continuing and I wouldn't say that we have any changes in terms of the pattern of the free cash flow that we would typically generate for the year and I certainly think that we're in a very good position. I think, quite frankly, that's one of the real attractives to Myers is just the ability for it to generate cash.

Aaron Schapper, President & CEO

Yes, Christian, I would just add that we're pretty happy. We remember the Section 301 tariffs when they came out back in 2018, and our team really was very proactive in making sure that we had what we needed to mitigate any of the tariff pieces. Sometimes there are bits and pieces that you have to get. And I think they did a great job of getting that inventory in early, just remembering some of the other tariff shocks that we moved quickly and got things in so that we could make sure we mitigate price and make sure that our customers are taken care of. So, we're in pretty good shape from that standpoint.

Christian Zyla, Analyst

Great. And last one for me, and then I'll pass it back. This is just a joint question for Signature and Scepter as it relates to Military. Have you seen any additional uptake in orders or qualification activities for your products in either of those businesses? And then for Scepter, ammunition containers, are you still projecting 40 million this year from that contract? And then what are your thoughts for 2026 and beyond for that? Thank you so much.

Aaron Schapper, President & CEO

We are very pleased with the order flow in both Scepter and Signature. We are seeing new customers and opportunities in both areas, and we are happy with the growth we are experiencing. The business is performing well, and we maintain strong relationships with our customers. We expect both businesses to see robust growth this year and into next year. We will evaluate the capital these businesses need to ensure they continue to grow and secure the necessary funding. We are also exploring additional opportunities, particularly in Europe for Scepter, to enhance growth in that region, as well as for Signature. So, we are excited about the prospects for growth both domestically and in Europe for these two businesses.

Christian Zyla, Analyst

Great, thanks. Dan looking forward to working with you.

William Dezellem, Analyst

Thank you. I have two questions. First of all, relative to the Vehicle group now forecasting that downturn. So, the Vehicle group turning down, is that specific to RV, marine, the auto components business? Is it tied to something changing in the economy? Could you provide more detail behind kind of that change in outlook, please?

Aaron Schapper, President & CEO

Yes, I'll address this in two parts. First, regarding the RV and marine sectors, there is a notable degree of hesitancy and caution among our customers in this segment. Tariff uncertainty is prevalent, and with potential inflationary pressures and possibly prolonged high interest rates, there is considerable uncertainty. A significant portion of RV and marine products are financed, so elevated interest rates complicate customers' decisions on how much to invest. This economic uncertainty is significantly impacting spending in these areas. Consequently, our customers lack clarity on what the remainder of the year will hold, leading to a wait-and-see approach. This is why we anticipate a weaker market than previously expected, especially compared to our last report when the outlook seemed more positive before tariff announcements. As for our Automotive sector and the parts we provide, the situation has been well covered regarding the impact of tariffs. There's ongoing caution and hesitancy, with various factors still being worked out regarding taxes and tariffs. Until there's more stability and clarity about the tariff landscape, we can expect fluctuations in this area as well. Currently, everyone is waiting for policy decisions to solidify on the tariff front, which should provide some release. In summary, both sectors face significant uncertainty, and accurate forecasting is proving to be challenging at this time. We're committed to being transparent about the current market situation.

William Dezellem, Analyst

That is helpful. And do you sense that your RV, marine customers that they have chosen to lower inventory, particularly let their dealers clear their lots a bit? Or is it something just more generic that they're in a bit of a pause mode due to not knowing?

Aaron Schapper, President & CEO

Yes, it seems like they are in a pause mode trying to determine their next steps. Some customers are considering shutting down plants, but overall, everyone is focused on listening and learning, engaging in discussions to gauge the direction of the economy. At this moment, it's definitely a situation of waiting, and I haven't received any specific updates on actions being taken. There's conversation about potential idling, but nothing concrete has been communicated yet.

William Dezellem, Analyst

Great. That's helpful. And then relative to the Distribution business, as you've taken some time here to learn this business, Aaron. What do you believe is needed to turn the business given the circumstances it finds itself in today?

Aaron Schapper, President & CEO

Well, the Distribution business, I'm still learning that business. It's a different business. It's very much a service and sales business. It's incredibly important to be close to our customers on that side and understand what our customers' needs are. And your customers' needs change over time and business evolve over time. I think it's really important to look at where we are from a sales organization and the services we provide to our customers and, A, make sure that we're providing the right service that our customers need; and B, making sure that we create value when we're offering those services and then we get paid according to that value. So, at this point, it's still early for me. I'm learning that business. I have a lot more customer visits. I really want to talk to a lot more of our customers to understand and make sure that we're matching our service with their needs and making sure that we add value. So, I think it's a little early. It's a great question, William, and I appreciate the question. And I hope that on the next time we speak that I will have a lot more information for me and for what our customers need and making sure that we match that.

William Dezellem, Analyst

Great, thank you. And Grant, thank you for all the time you've spent with us over the last couple of years and very best of luck in whatever the next chapter brings for you.

Grant Fitz, Executive Vice President & CFO

Well, thanks so much Bill. It's been great to work with you and Matt as well too.

Operator, Operator

And our next question comes from Anna C Jolly with Gabelli & Company.

Unidentified Analyst, Analyst

Good morning, it's Carolina from Gabelli. Thank you for taking my question. It's been just over a year since you acquired Signature. Can you share what has worked well for you during this time, what hasn’t, and any insights you’ve gained from the acquisition?

Grant Fitz, Executive Vice President & CFO

Yes. I can take that one. Good morning, it's great to hear from you. Signature has proven to be a very beneficial acquisition for Myers. As we've discussed previously, this aligns well with the business case we developed when we first acquired the company. One of the key takeaways is that Signature has contributed significantly to our business by enhancing some of our processes and operations. We’ve gained valuable insights from each other; Signature has improved uptime on their equipment thanks to our expertise, while we've adopted some of Signature's practices in our core businesses for similar enhancements. Overall, their business management system has been beneficial across the company. Additionally, we discussed the synergies—we’ve achieved $12 million in synergies, exceeding our initial expectation of $8 million. This has been driven by various factors, including greater resin savings than we anticipated. We are very confident about the business, which is in a strong end market with significant growth potential. Culturally, it integrates well with Myers as well. Each acquisition presents an opportunity for learning, and we are constantly building on that.

Aaron Schapper, President & CEO

I would just add that from my perspective, it's a great culture with an excellent sales team and operational team. As we work through the integration, the insights gained from Signature and from each other about our processes enhance the overall effectiveness. A strong culture during integration truly strengthens Myers as a business. Therefore, we are very pleased with the Signature acquisition and are happy to have the Signature team as part of Myers, and we will continue to benefit from their contributions.

Unidentified Analyst, Analyst

Perfect, thanks. And then just a second question. In the press release, you discussed pricing on the Material Handling segment. Can you just elaborate a little bit on the decisions around pricing?

Dan Hoehn, Vice President, Corporate Controller

So, you're inquiring about the pricing in the Material Handling segment, correct?

Unidentified Analyst, Analyst

Yes.

Dan Hoehn, Vice President, Corporate Controller

So, we did take some strategic spots where we adjusted our pricing to make sure that we were more competitive in the market and to drive volume.

Aaron Schapper, President & CEO

Thanks, Carolina. I was just going to say we've been very active on just making sure and particularly in our Akro-Mils area and Buckhorn area that we've been going after any competition that we've had in those areas, and I think we've been very successful with that. And just once again, kind of going back to that is our customers they pay for value. And it's really important that when we're going through and we're looking at pricing that we are pricing to the value that we're giving. And so, I think we've had good gross margins in a lot of these businesses. It's really continuing to make sure that we press the pricing for the value that we give. And we've got good relationships with customers. We've got a long-standing relationship with these customers, and I think they value what we bring to the table. So, we're just making sure that our pricing continues to reflect that value in most everything we do.

Meghan Beringer, Senior Director of Investor Relations

Thank you for joining us today. My contact information is available on the last slide of this deck should you want to schedule time to continue this conversation. Also, we are attending the KeyBanc Conference in Boston on May 29. We look forward to connecting with you. With that, we will end the call. Have a good day.

Operator, Operator

Thank you. And that concludes today's call. Thank you for joining. You may now disconnect.