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Myers Industries, Inc. (MYE)

Q2 2025 Earnings Call· Fri, Aug 1, 2025

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Transcript

Operator

Operator

Good morning. Thank you for joining today's Myers 2025 Second Quarter Earnings Results Call. My name is Makhaye, and I will be the moderator for today's call. [Operator Instructions] At this time, I would like to pass the call over to our host, Meghan Beringer. Meghan, you may begin today's call.

Meghan Beringer

Analyst

Thank you. Good morning, everyone, and welcome to Myers Second Quarter 2025 Earnings Review. Joining me today are Aaron Schapper, President and Chief Executive Officer; and Dan Hoehn, Vice President, Corporate Controller and Interim Chief Financial Officer. After the prepared remarks, we will host a question-and-answer session. Earlier this morning, we issued a press release outlining our second quarter financial results. In addition, a presentation to accompany today's prepared remarks has been posted. Both documents are available on the Investor Relations section of our website at myersindustries.com. This call is being webcast live 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. Please turn to Slide our 5 of our presentation as I will now turn the call over to Aaron.

Aaron M. Schapper

Analyst

Thank you, Meghan. Good morning everyone and thank you for joining us. I will begin today's call with review of our second quarter, then I will provide an update on Focused Transformation, including announcements to accelerate our progress that we published this morning in our press release. Following my comment, Dan will provide a detailed review of second quarter financials and our outlook for the year. Second quarter review was lower year-over-year. We achieved strong growth in certain applications, notably in industrial, where demand for our military products remain healthy. However, we did encounter demand headwinds in most other end markets, primarily in vehicle and automotive aftermarket, resulting in lower sales across both segments. As Dan will detail in a few moments, we believe some of the softness is timing related. Our outlook for the second half of the year is positive, backed by our substantial backlog, primarily in industrial markets, especially military as well as infrastructure projects. We remain encouraged by the longer-term trends within our markets. We demonstrated progress against our goal to reduce SG&A, bringing those expenses down year-over-year and keeping us on pace to achieve our targeted $20 million cost reduction, primarily SG&A by the end of this year. For the quarter, we earned $0.26 per share. Adjusted EPS was $0.31. I'm pleased with the way our team has navigated challenging end market environments and remain confident that we are on track to improve performance. Turning to Slide 6. I would like to provide an update on our Focused Transformation program. We introduced this initiative earlier this year to improve our performance and deliver more consistent and reliable results. Today, we announced 3 actions that we believe will accelerate our transformation and bring us closer to obtaining our goals. I would like to discuss each of…

Daniel W. Hoehn

Analyst

Thank you, Aaron, and good morning, everyone. Turning to our financial results on Slide 10. Second quarter net sales were $209.6 million, down 4.8% from last year. Revenue was lower in both segments. Strong sales of our military products and our industrial end market were offset by lower sales in vehicle and automotive aftermarket. We remain confident in second half growth based on our strong backlog for both military products in the industrial end market and for infrastructure products, along with continuing positive customer bookings. The adjusted gross margin fell 220 basis points to 33.9% due to the lower volume, product sales mix and lower pricing, primarily in the Distribution segment. Adjusted operating income decreased to $22.8 million, with margin compressing 220 basis points to 10.9% of sales. We reduced adjusted SG&A expenses 5%, keeping them essentially flat as a percentage of sales as we are beginning to see results from our Focused Transformation initiatives. As these actions continue to be completed, plus the expected benefit from the strategic moves that Aaron mentioned earlier, SG&A will continue to decrease through the balance of the year. When 2024 is normalized for incentive compensation and to include a full year of Signature results, we have taken actions to achieve $15 million of run rate savings as of June. The production consolidation we announced today will bring us to $18 million, and we have a pipeline of opportunities to achieve the full $20 million of run rate savings by the end of the year. To date, savings have primarily come from reduced workforce, most of which was implemented at the end of the second quarter, reductions in spend on outside services and reduced operating footprint. In connection with idling 2 of our 9 rotational molding operating facilities, we expect costs of up to…

Aaron M. Schapper

Analyst

Thank you, Dan. We've made significant progress over the first 6 months of our Focused Transformation journey. The pace of our progress accelerated with today's announcements regarding the strategic review of MTS, rotational molding production capacity consolidation and confirmation of achieving our cost reduction goals. While these actions will not complete our transformation, they bring us much closer to our goals. With strong support and leadership from our Board of Directors, we are clarifying our mission and laying a solid foundation upon which we are building our long-term strategy. I'm very pleased with our progress and more confident on our journey towards success. With that, I'd like to turn the call over to the operator for questions.

Operator

Operator

[Operator Instructions] The first question is from the line of Christian Zyla with KeyCorp.

Christian Zyla

Analyst

Very exciting news in today. Aaron, you launched Focused Transformation a couple of quarters ago, and it's clear you really meant it. Just first question, was there a final straw that broke the camel's back that got you to this point? Or was it a culmination of what you're seeing in your business and the market? Just any overall thoughts of the process of how you got here.

Aaron M. Schapper

Analyst

Yes. So this -- the MTS piece has been -- it's been an internal topic of discussion for some time. So coming in here, I grew up in manufacturing, manufacturing in my background, but I really knew kind of the agriculture and more of the infrastructure businesses. And so with my move to Myers, I really felt the need to take some time to learn the auto industry, and that primarily meant gathering data, gathering inputs and opinions from people that knew the business, knew it better than I did and to make sure that I spent time meeting with customers, meeting with stakeholders and meeting with our Board and just gathering all the data needed for the decision to do the strategic review for MTS. And so the first 6 months was really just to take the proper time to do the evaluation, Christian.

Christian Zyla

Analyst

Got it. Understood. Again, exciting news regardless of what happens. It's good to see actual changes being talked about and coming to fruition. I guess next question is just on the backlog. This is probably one of the first times we've heard you guys talking about a backlog, and it's very encouraging to see the soft guidance for 3Q sales. How big is the backlog relative to sales? And how much visibility does that give you? Is that backlog primarily Signature related? Or have you seen order patterns changing? Or is there something different that's being changed with customer order patterns?

Daniel W. Hoehn

Analyst

So when we think about our infrastructure sales, so for the composite matting, right, those tend to be large projects. So you get a little bit of visibility into how those are going to unfold. So for that business and as we grow in military, we'll see more backlog in those specific areas. I think for the other businesses, it depends, and we see a lot more kind of book and bill as we go. So we're really encouraged by the large backlog that we're seeing in those 2 areas, and it does give us a lot of confidence as we go into the back half.

Christian Zyla

Analyst

Got it. And if I could just sneak in one more question. Free cash flow of $25 million in the quarter was exceptionally strong. What drove that? Is there some seasonality in there that we should be thinking of? And then just bigger picture, can you give us a sense of what you could or should do annually for free cash flow, assuming both scenarios of keeping or not keeping distribution within Myers. Just how do we think about your annual potential?

Daniel W. Hoehn

Analyst

Yes. So obviously, I think the cash flow is indicative of what we can and should be doing, right? Remember, we talked about timing in the last quarter. We clearly made that up and then some a little bit. And historically, we've had a little bit more cash flow in the back half. So as you think about that, I expect similar trends this year. Now there can be timing from quarter-to-quarter. As I mentioned, with some of these large backlog orders, they tend to ship in large chunks as well. So any one quarter might not be indicative. But on a general trend, I think we're showing what the business can do. I think the -- if you look at the EBITDA mix between our 2 segments, you can get an idea of what that does with our cash flow with and without MTS.

Operator

Operator

The next question is from the line of Anna C. Jolly with Gabelli & Company, Inc.

Carolina Jolly

Analyst

It's Carolina. Just, I guess, the first one, what gives you confidence, I think, in the rebound in seed boxes in the second half of the year?

Aaron M. Schapper

Analyst

Yes. So really, it comes from our customers, looking at what our customers' demand is in the back half of the year. And they will put in orders and give us an indication of kind of the seed box need that they're going to need. And we've already been working on orders for replacement parts as well. So when we look at the replacement parts, it gives us kind of a general idea that the back half of the year. And the normal seasonality for those seed boxes is the back half of the year anyway. And so it's good to kind of get feedback from our customers, understand what they're seeing out there, and that's what gives us confidence in the back half of the year will be better on the seed box side.

Carolina Jolly

Analyst

Perfect. And then also, I know the Signature acquisition was back in the beginning of 2024. So I'd still just be interested in any commentary on how the company is being integrated and the progress there?

Aaron M. Schapper

Analyst

Yes. Let's -- the Signature culture is a great add to Myers in general. We're happy to have them on board. I think that they bring a unique set of operational talents that we're actually able to really utilize across more of our material handling footprint. So what you're going to see is the talent operations folks are working with our rest of the Myers industry operations group to share best practices and do what they do best and then Myers teaches them what we do best. So I think between the 2, it really is a good synergy of operations and looking at the operations side of the business. Additionally, having Signature adds a real growth opportunity for us in the infrastructure side of the business. Obviously, my background on the infrastructure side is complementary. So we're really excited to take Signature and grow that business and look at other growth opportunities in the year. And we're also excited to be talking about that. I mean, we talked about doing a strategic review later in November. So we're excited to come back and talk to you and the market about what we're doing in the infrastructure business and how we intend to grow and intend to grow our portfolio on that side of the business.

Operator

Operator

The next question is from the line of William Dezellem with Tieton \Capital Management.

William Joseph Dezellem

Analyst

That's Bill Dezellem. And let me switch to Signature's tariff impact. Did we hear correctly in the opening remarks that there was some weakness tied to tariffs? And if so, would you help us understand the mechanics of how that impact happened?

Daniel W. Hoehn

Analyst

Yes. Sure, Bill. I think when we think about the tariffs, it's a similar story to what we talked about in the past and that our input costs are largely unaffected. We have a small amount within the distribution business. But we do have a small but growing part of export sales. And what we've seen is some customers kind of delaying purchases as they just wait for some certainty or weigh those additional tariff costs. So there's still a lot of interest in our product for the applications that our customers are using, and they're just -- it can affect the timing of those sales or has affected the timing of those sales.

Aaron M. Schapper

Analyst

Yes. And Bill, as we expect some of these kind of tariff resolutions as we're kind of rolling through the summer, I mean, we're hoping that those are disconnections in the market on a short-term basis. But Signature does have an export business, and it was affected by kind of that uncertainty in the quarter.

William Joseph Dezellem

Analyst

And has that cleared up? Or is there still enough uncertainty -- maybe I should ask, where are those sales going? And I guess the clarity will be whether we have a final deal or not with those countries?

Aaron M. Schapper

Analyst

Yes. Specifically, there were really -- that one was both Europe and Canada at the time. And so we do have some resolution, which is good, both with the latest Europe resolution. So we do have some resolution. So we hope to not have those kind of disconnects in the next quarter.

William Joseph Dezellem

Analyst

And then just taking this one step further, if -- is there a level of tariff that's currently being talked about with Canada in particular, that would essentially eliminate those sales. And so that's a risk that you have to deal with? Or is that not a factor here?

Aaron M. Schapper

Analyst

No, I don't believe that will be a big factor going forward. I think that when you're going through the different pieces and parts of the tariffs, I think more than anything else, people just want resolution one way or the other. And then I think the market has stabilized. We're comfortable with our position in the market. We're comfortable with our pricing in the market. I think it's just there's always caution and a little bit of uncertainty when you don't know what that next tariff rate is going to be or by the time you get -- because these are -- look, remember, these are backlog orders. And then when you get to the final projects that are usually planned well in advance. And so when you finally get to the final shipping dates, you want to know that the policy is going to be the same as what you budgeted for. So when you look at it with that infrastructure lens and that kind of backward lens, it makes a little more sense that you'd like to have that certainty of tariff rate out there. And so as we kind of get to resolution, I think that, that noise will go away.

William Joseph Dezellem

Analyst

That's very helpful. And then relative to the 2 idled rotational molding lines, do you anticipate that if volume increases that those lines will be needed? Do you anticipate moving those lines to other locations? So let's fill out the big picture on those -- on that situation for us, please?

Aaron M. Schapper

Analyst

Yes. So there are 2 rotational molding plants, not just production lines that are going to be idled. So look, the rotational molding kind of operational footprint was built during a really strong automotive, very strong RV backdrop in lens where there was pretty brisk market conditions at the time. And so just looking at the operational footprint and especially looking at -- when we look at OEs and other operational metrics, as we could do a lot more with the footprint that we currently have. So -- and looking at efficiencies and looking at the size of those 2 plants that they're not needed at this time. Now obviously, we have options, and we always like to keep our options open on the backside for those plants in the future. But right now, that capacity is not needed. And so our customers have also been looking closely at capacity. We're just aligning with our customers' needs and making sure that we provide the most efficient operational structure for them.

William Joseph Dezellem

Analyst

And those 2 plants, are they owned or leased? You're trying to understand how you're thinking about the physical facilities with time.

Aaron M. Schapper

Analyst

Yes, there are 2 leased facilities.

Operator

Operator

There are currently no questions registered. [Operator Instructions] There are currently no questions registered at this time. I'd like to pass the call back over to Meghan for any further remarks.

Meghan Beringer

Analyst

Thank you for joining us today. If you'd like to continue the conversation, my contact information can be found on the final slide of this presentation. We look forward to staying in touch. With that, we'll conclude the call. Have a great day.

Operator

Operator

Thank you all. This now concludes today's call. We appreciate your participation, and you may now disconnect your lines.