President and Chief Executive Officer John C. Orr said, “Despite the severe economic downturn and decline in demand during the fourth quarter, we are reporting positive operating results, exclusive of special items, for both the fourth quarter and full year. I am proud that our employees remained focused all year on initiatives we could control, such as product pricing, reducing expenses, developing new channels for growth and maximizing cash flow.
“Our actions will enable us to emerge stronger and to capitalize on new business and pent-up opportunities when the economy begins recovery.”
$ Millions, except per share data
Net sales for the fourth quarter of 2008 were $189.9 million compared to $232.8 million in the fourth quarter of 2007. For the full year, net sales were $867.8 million compared to $918.8 million in 2007. The impact of higher selling prices, totaling approximately $38 million in 2008, enabled the Company to recover most of its costs from record-setting raw material prices. Selling prices could not, however, fully offset the higher raw material costs and dramatic decline in volume due to the rapid economic deterioration and weakness in Company’s markets in the second half of 2008.
Gross profit as a percent of sales was 24.1% in the fourth quarter of 2008 compared to 22.5% in the fourth quarter of 2007. Positive selling price momentum coming into the fourth quarter helped to mitigate the impact of raw material cost inflation, weakening demand and lower manufacturing volumes in the quarter. Gross profit as a percent of sales was 23.4% for the full year compared to 25.6% in 2007, reflecting the negative impact of higher raw material costs and lower volumes on manufacturing absorption.
The Company reported a loss from continuing operations for the 2008 fourth quarter and full year of $59.1 million and $46.2 million, or $1.68 and $1.31 per share, respectively. This is compared to income from continuing operations of $18.2 million and $36.9 million, or $0.52 and $1.05 per share, respectively, for the 2007 fourth quarter and full year. Both years include special pre-tax items.
A reconciliation of special items and their impact on Earnings Before Tax (EBT), Net Income and Earnings Per Share (EPS) for the 2008 and 2007 fourth quarter and full year results is as follows (in millions, except per share data):
Restructuring, Severance & Compensation
Weighted average common shares outstanding
Weighted average common shares outstanding
*NOTE: Income taxes were imputed using a normalized tax rate of 40% for 2008 and the actual effective rate of 35% for 2007.
1) A non-cash goodwill impairment charge of approximately $60.1 million in the fourth quarter for the Automotive and Custom segment. All of the impairment charge relates to goodwill from acquisitions made by the Company in 1995 and 2004 and reflects year-end conditions in automotive, RV and other manufacturing markets served by those businesses. The impairment charge will not result in any cash expenditures and does not affect cash flow from operating activities.
2) Expenses of approximately $13.5 million in the fourth quarter and $18.1 million for the year, primarily in connection with the Company’s restructuring and optimization initiatives in the Lawn and Garden Segment. Approximately $9.2 million of these expenses in the fourth quarter relate to non-cash impairment of fixed assets from the Company’s closure and consolidation of manufacturing facilities.
3) In light of the difficult operating environment, management made the decision in the fourth quarter to eliminate the Company’s management bonus and profit sharing contribution for 2008. This action added approximately $3.5 million to fourth quarter pre-tax income.
1) Non-operational income in the fourth quarter of $26.8 million ($35.0 million, net of expenses) from a termination fee paid in connection with the Company’s proposed merger.
2) Restructuring, severance and purchase accounting adjustments aggregating approximately $2.2 million and $9.5 million for the quarter and year, respectively.
3) Merger related expenses of approximately $1.4 million and $4.7 million for the quarter and year, respectively.
4) For the full year, foreign currency transaction losses of approximately $4.7 million in the Company’s Lawn and Garden Segment.
Prices for raw materials used in the Company’s manufacturing operations, primarily high-density polyethylene (HDPE) and polypropylene (PP) plastic resins, reached record highs in 2008. For the nine-months ended September 30, 2008, raw material prices were approximately 33% higher on average compared to 2007. As economic conditions worsened during the fourth quarter, prices for raw materials softened, but year-over-year prices remained approximately 20% higher on average.
Throughout 2008, the Company focused on product pricing actions required to recover the costs from unprecedented raw material price inflation, which began in 2007.
Operating cash flow was approximately $60 million for year ended December 31, 2008. This enabled the Company to increase and maintain dividend payments in 2008 to provide returns to shareholders, and fund strategic capital expenditures without increasing debt.
Cash dividends paid in 2008 were $18.3 million, including a special payment of $0.28 per share in connection with termination of the Company’s proposed merger. The regular quarterly cash dividend was increased 14 percent to $0.06 per share beginning with the January 2008 payment.
Capital expenditures were approximately $41 million in 2008 compared to $20 million in 2007. The 2008 expenditures exceeded the Company’s projection of $20 to $25 million due to opportunistic investments made for technology to fuel new product development and productivity savings.
Total debt was $171.6 million at year-end, essentially unchanged from $170.9 million at December 31, 2007. At December 31, 2008, the Company had a strong financial position with more than $185.0 million of available borrowing under its $250 million Credit Agreement, which expires in October 2011. The Company remains in compliance with all of its debt covenants, and management believes cash flow from operations and available credit facilities will be sufficient to meet expected business requirements in 2009.
Loss before taxes in the Lawn and Garden Segment was $7.0 million in fourth quarter and $1.8 million for the year. These results, however, include expenses and charges in connection with the segment’s restructuring and optimization project. In the 2008 fourth quarter, these expenses and charges were $8.5 million; for the full year, expenses and charges were $9.2 million. Excluding these expenses and charges, income before taxes was $1.5 million in the fourth quarter and $7.4 million for the full year. In the fourth quarter of 2008, weak demand and unit volumes offset the benefits from higher selling prices implemented to recover raw material cost increases, as well as initial benefits from productivity and manufacturing improvements from the restructuring project.
Net sales in the Lawn and Garden Segment for the fourth quarter of 2008 declined significantly due to deferred or lower order volumes from growers, as a result of uncertain forecasts from retailers about their needs for spring 2009 garden center programs. For the full year of 2008, sales were negatively impacted by colder spring weather through many parts of the U.S., which slowed the start of consumer purchasing. This slowdown increased throughout the rest of the year with the overall decline in the economy, which caused growers both to reduce order volumes and, in some cases, postpone container purchases. Higher selling prices to recover raw material cost increases partially offset the impact of lower volumes in the quarter and year.
In late 2008, the Company embarked on a major restructuring project in this segment to improve profitability and better serve current and anticipated market requirements. Objectives of the project include: manufacturing consolidation and capacity realignment; distribution and supply chain streamlining; and enhanced forecasting, workflow and inventory management systems.
Net sales in the North American Material Handling Segment for the fourth quarter of 2008 reflect the deepening impact of global recession across nearly all markets served. While markets such as agriculture and food processing presented areas of opportunity throughout the year, weakness continued to grow and pervade all sectors of industrial manufacturing. Maintenance of higher selling prices enabled recovery of record high raw material costs, but these could not offset the sharp decline in demand and unit volumes during the year as customers idled facilities, shutdown purchasing and deferred reusable container and pallet conversion projects.
Income before taxes in the fourth quarter and through the full year of 2008 was negatively impacted by progressively lower demand and unit volumes. Higher selling prices, combined with internal and external cost reduction measures, did not offset these factors.
Net sales in the Distribution Segment for the fourth quarter and through the full year of 2008 were adversely affected due to the reduction in tire sales and slow tire service demand across all major markets. Primary factors influencing the markets include: 1) miles driven in 2008 compared to 2007 marked the largest, continuous decline in American history, according to the U.S. Department of Transportation; 2) the steep decline in housing construction, impacting construction vehicle use and maintenance needs; and 3) a greater shift to just-in-time ordering of consumable service supplies and decline in capital spending for service equipment as tire dealers and other industry service providers faced weakening demand from their customer base.
Income before taxes in the fourth quarter of 2008 was lower due to a sharp decline in end market demand and the resulting lower unit volumes for both tire service supplies and equipment. For the full year, benefits from favorable product mix and expense controls did not offset lower volumes.
In the fourth quarter of 2008, overall conditions in automotive, RV and other end markets served by certain businesses in the Automotive and Custom segment resulted in a non-cash goodwill impairment charge of approximately $60.1 million. Accordingly, the Company reported a loss before taxes of $61.5 million in fourth quarter and $55.0 million for the year. Excluding the charge, loss before taxes was $1.4 million in the fourth quarter, and income before taxes was $5.1 million for the year, as improved selling prices and expanded expense controls, including manning reductions and extended facility shutdowns, partially offset weak demand.
Net sales in the Automotive and Custom Segment for the fourth quarter of 2008 were impacted by the progressive weakness and significant volume declines in automotive, heavy truck, RV, marine, industrial and construction markets. Through both the fourth quarter and year, new business and customer relationships in original equipment and custom molding markets, as well as maintenance of higher selling prices to recover raw material cost inflation, helped to partially offset the full impact of volume declines and overall end market conditions.
While current economic conditions for the foreseeable future will remain challenging, the Company will continue to focus on strengthening niche-market positions; improving manufacturing and distribution structure to reduce costs and increase productivity; and capitalizing on opportunities for sustainable, profitable growth.
The Company continues to review its business segments for operational improvement opportunities, particularly in the Automotive and Custom Segment to determine long-term growth objectives. In addition, workforce and expense reductions have been implemented, including a company-wide freeze on wages, merit increases and hiring. Management believes these are essential actions in the best interest of the Company and shareholders given the recessionary operating climate.
Orr concluded, “As a direct result of our transformation actions implemented over the past three years, Myers Industries is better prepared to weather future challenges. In 2009, we will remain vigilant for long-term growth and competitive positioning opportunities, while taking advantage of every instance to decrease costs and maximize cash flow. We are confident that, as demand in our end markets improves and the economy rebounds, we will emerge in an even stronger growth position.”
Myers Industries undertakes no obligation to publicly update or revise any forward-looking statements contained herein. These statements speak only as of the date made.