The Company reported net sales of $135.2 million, roughly flat compared to the third quarter of 2017. Increased sales in the Company’s industrial and vehicle end markets were offset by declines in the consumer, auto aftermarket and food and beverage end markets. Sales in the vehicle end market were upyear-over-year despite adouble-digit decline in sales to the recreational vehicle market. Gross profit margin increased to 31.1%, primarily due to pricing actions and savings from last year’s restructuring initiatives, partially offset byhigher-than-expected factory costs driven by increased maintenance and repair activity. Selling, general and administrative expenses decreased $0.7 millionyear-over-year to $34.4 million, with the decrease in expenses primarily attributable to lower incentive compensation and benefit costs, partially offset by higher R&D costs due to a new product launch in the Company’s consumer market.
Segment Results
Net sales in the Material Handling Segment increased by 2.6% (or 3.2% excluding currency fluctuation) compared to the third quarter of 2017. The increase in net sales was primarily due to increased volume in the segment’s industrial and vehicle end markets, partially offset by declines in the consumer and food and beverage end markets. Increased sales to automotive and marine customers in the segment’s vehicle end market more than offset a decline in sales to the recreational vehicle market. The segment’s adjusted EBITDA margin was 17.5% compared to 16.5% in the third quarter of 2017. The increase in adjusted EBITDA margin was primarily the result of pricing actions and the benefit of restructuring actions taken in 2017, partially offset byhigher-than-expected factory and R&D costs.
Net sales in the Distribution Segment declined by 6.1% compared to the third quarter of 2017. The decline was primarily due to lower equipment and international sales at Myers Tire Supply. The segment’s adjusted EBITDA margin was 7.6% compared to 8.7% in the third quarter of 2017. The decline was primarily due to the lower sales volume, which was partially offset by gross margin expansion driven by a favorable mix of consumables versus equipment.
Charges Related to HC Companies Promissory Notes and Lease
In February 2015, the Company sold its Lawn and Garden business to an entity controlled by Wingate Partners V, L.P. The terms of the transaction included promissory notes totaling $20 million (the notes) that mature in August 2020. The carrying value of the notes and corresponding accrued interest as of September 30, 2018 was approximately $23 million. Additionally, the Company is a guarantor for one of the entity’s facility leases expiring in 2025. Remaining rent payments under the lease total $14 million.
During the third quarter of 2018, management of the Lawn and Garden business, now named HC Companies, Inc., requested an extension to the maturity of the notes as part of an effort to restructure their debt. The Company believes there is uncertainty about the ability to collect on the notes. As a result, the Company recognized anon-cash,pre-tax charge of $23 million in the third quarter of 2018 with respect to the notes. The Company estimates that the potential obligation under the lease guarantee will be in the range of $10 to $14 million. As a result, the Company recognized apre-tax charge of $10.3 million during the third quarter of 2018 with respect to the lease guarantee.
Strategic Actions for the Distribution Segment
The Company began implementing additional sales performance improvement and cost reduction actions within its Distribution Segment during the fourth quarter of 2018. These actions include investments to strengthen the segment’sgo-to-market strategy and broaden existinge-commerce capabilities. The Company is also evaluating opportunities to rationalize its product portfolio and reduce freight and distribution costs, as well as other ancillary and fixed costs. As a result, the Company expects to incur costs of approximately $1.5 million during the fourth quarter of 2018 to assist with execution of the actions.
2018 Outlook
For fiscal year 2018, the Company anticipates that total revenue will be flat to uplow-single-digits on a constant currency basis compared to the prior year. The Company expects capital expenditures to be in the range of $6 million to $8 million. Net interest expense is forecasted to be between $4 million and $6 million. Depreciation and amortization is forecasted to be approximately $26 million. The Tax Cuts and Jobs Act will benefit the Company through a decrease in its effective tax rate, which is expected to be approximately 25% compared to approximately 36% in 2017.
Conference Call Details
The Company will host an earnings conference call and webcast for investors and analysts on Tuesday, November 6, at 8:30 a.m. ET. The call is anticipated to last approximately one hour and may be accessed by dialing: (US)833-233-3452 or (Int’l)647-689-4129. The Conference ID # is 7896135. Callers are asked to sign on at least five minutes in advance. The live webcast of the conference call can be accessed from the Investor Relations section of the Company’s website atwww.myersindustries.com. Click on the Investor Relations tab to access the webcast. Webcast attendees will be in alisten-only mode. An archived replay of the call will also be available on the site shortly after the event. To listen to the telephone replay, callers should dial: (US)800-585-8367 or (Int’l)416-621-4642. The Conference ID # is 7896135.
