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Myers Industries Reports 2019 3rd Quarter Results

Third quarter 2019 net sales decreased $9.7 million or 7.2% to $125.5 million, compared to the third quarter of 2018.

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Myers Industries, Inc., a manufacturer of polymer products for industrial, agricultural, automotive, commercial and consumer markets, recently announced results for the third quarter ended September 30, 2019.

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3rd Quarter 2019 Financial Highlights

• GAAP income per diluted share from continuing operations was $0.15, compared to a loss of $0.60 for the third quarter of 2018, which included a charge of $33.3 million related to the 2015 sale of the company’s Lawn and Garden business; adjusted income per diluted share from continuing operations was $0.15, which was flat compared to the third quarter of 2018.

• Net sales decreased 7.2% to $125.5 million.

• Adjusted operating income increased 7.9% to $8.5 million, despite a $3.5 million charge for estimated product replacement costs related to a manufacturing defect in certain boxes produced within the Material Handling Segment in 2019.

• Generated cash flow from continuing operations of $23.3 million and free cash flow of $22.1 million.

• Completed acquisition of Tuffy Manufacturing for $18 million in August 2019.

Updated Full-Year 2019 Outlook

• Full-year 2019 net sales are now expected to be down high single digits due primarily to soft demand in the company’s food and beverage end market, which is anticipated to continue during the fourth quarter

• Full-year GAAP income per diluted share from continuing operations is expected to be in the range of $0.65 to $0.70 for 2019; adjusted income per diluted share from continuing operations is expected to be in the range of $0.75 to $0.80

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“Third quarter adjusted operating income grew despite a decrease in net sales and the charge for estimated product replacement costs in our Material Handling Segment. Net sales were down 7.2% due to softer than anticipated demand in our food and beverage and industrial end markets coupled with continued weakness in our consumer and vehicle end markets. The volume declines were more than offset by cost decreases and savings from the Distribution Segment transformation,” said Andrean Horton, interim president and CEO of Myers Industries.

Horton continued, “Within our Distribution Segment, we continued to make progress and execute on the transformation while also integrating the recently acquired Tuffy Manufacturing Industries, Inc. The 2019 third quarter marked the fourth consecutive quarter of net sales growth with adjusted EBITDA increasing by 38.9%. We continue to be on track to meet our Distribution Segment EBITDA margin goal of 10% by the end of 2020.”

Overall Results

Third quarter 2019 net sales decreased $9.7 million or 7.2% to $125.5 million, compared to the third quarter of 2018. The decrease was the result of a sales decline in the Material Handling Segment. Gross profit decreased $2.5 million to $39.6 million, compared to the third quarter of 2018. Gross profit margin increased 40 basis points to 31.5%. Favorable price-cost margin more than offset the lower sales volume and $3.5 million charge taken during the quarter for estimated product replacement costs. Selling, general and administrative expenses decreased $2.9 million to $31.5 million, compared to the third quarter of 2018, due primarily to lower variable compensation costs and savings from the Distribution Segment’s transformation initiatives. GAAP income per diluted share from continuing operations was $0.15, compared to a loss of $0.60 for the third quarter of 2018 when the company recognized $33.3 million of charges related to its Lawn and Garden business which was sold in 2015. Adjusted income per diluted share from continuing operations was $0.15, which was flat compared to the third quarter of 2018.

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Segment Results

Net sales in the Material Handling Segment (consumer, food and beverage, industrial and vehicle end markets) for the third quarter of 2019 decreased $13.6 million or 13.9% compared to the third quarter of 2018. The decrease in net sales was primarily due to sales decreases in the company’s food and beverage (lower seed box sales) and industrial (lower military product sales) end markets. The segment’s adjusted EBITDA declined 9.7% to $15.4 million for the third quarter of 2019, compared to $17.1 million for the third quarter of 2018. The lower sales volume and charge for estimated product replacement costs were partially offset by favorable price-cost margin and lower variable incentive compensation costs. Material Handling adjusted EBITDA margin for the third quarter increased 90 basis points to 18.4%.

Net sales in the Distribution Segment (auto aftermarket end market) for the third quarter of 2019 increased $3.8 million or 10.2% compared to the third quarter of 2018. Incremental sales due to the August 2019 Tuffy acquisition totaled $2.4 million. The segment’s adjusted EBITDA increased 38.9% to $4 million compared to the third quarter of 2018, due primarily to savings from the segment’s transformation initiatives, higher sales volume and the Tuffy acquisition. The company continues to execute its transformation plan, which includes enhancements in its go-to-market strategy, the implementation of 80/20 to drive improved contribution margins, and optimization of its logistics and overhead costs, with a goal to expand Distribution EBITDA margin to 10% by the end of 2020. Distribution adjusted EBITDA margin for the third quarter increased 190 basis points to 9.5%.

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2019 Outlook

For the full-year 2019, the company now anticipates that total revenue year-over-year will be down high single digits versus its previous expectation of down low-to-mid single digits year-over-year. While the company anticipates full-year sales growth in its Distribution Segment, it expects that growth to be more than offset by lower year-over-year sales in its Material Handling Segment.

“The Tuffy acquisition completed in the third quarter has already contributed to the Distribution Segment’s growth and we expect that acquisition along with our strategic initiatives to result in increased sales for the fourth quarter as well,” said Horton. “With respect to our Material Handling Segment, there continues to be uncertainty in the farm sector due to the late planting season, and some of our food and beverage customers have indicated that demand for the upcoming season will be softer than expected. Additionally, sales in our industrial end market declined year-over-year during the third quarter due to softer than anticipated demand for our military products. Although we anticipate continued sales growth in Distribution, we believe those sales increases won’t be enough to overcome the expected market declines in Material Handling. As a result, we are adjusting our full-year sales outlook to reflect the impact of these updated expectations.”

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The company anticipates depreciation and amortization to be approximately $24 million, net interest expense to be approximately $4 million, and the effective tax rate to be approximately 27%. GAAP income per diluted share from continuing operations is estimated to be in the range of $0.65 to $0.70, which is updated from the company’s previous estimate of $0.62 to $0.72. The updated GAAP earnings outlook reflects the decreased sales outlook and the $3.5 million charge for estimated product replacement costs, partially offset by a decrease in incentive compensation costs and an anticipated reversal of approximately $2.3 million of stock compensation costs during the fourth quarter of 2019, resulting from the departure of the company’s CEO in October 2019. The company anticipates that adjusted income per diluted share from continuing operations will be in the range of $0.75 to $0.80, which is updated from the company’s previous estimate of $0.75 to $0.85, and is based on a fully diluted share count of 36 million shares. The updated adjusted earnings outlook reflects the same items mentioned above, except for the anticipated reversal of approximately $2.3 million of stock compensation costs during the fourth quarter of 2019, which the company expects to exclude from adjusted earnings. Capital expenditures are anticipated to be approximately $10 million.

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