Myers Industries Q3 2025 Earnings Call: Contradictions Emerge on Military Growth, Backlog Visibility, Free Cash Flow, and Defense Expansion

Date of Call: None provided

Financials Results

• Revenue: $205.4M, slightly higher year-over-year
• EPS: GAAP EPS $0.19; Adjusted EPS $0.26, up year-over-year
• Gross Margin: 33.9%, up 150 basis points year-over-year (adjusted)
• Operating Margin: 10.2%, up 20 basis points year-over-year (adjusted)

Guidance:

• Military sales expected to exceed $40M in 2025; year-to-date military sales up 119%.
• Infrastructure (composite matting) demand strong with backlog largely converting in Q4.
• Vehicle end markets and automotive aftermarket distribution expected to be down.
• Consumer sales down due to lack of storm activity; food & beverage/agriculture expected stable.
• Target capex near 3% of sales; aim to reduce net leverage toward 1.5–2.5x.

Business Commentary:

* Financial Performance and Cash Flow Improvement: - Myers Industries reported net sales of $205.4 million for the third quarter, slightly higher year over year. - The improvement in financial performance was driven by strong demand in infrastructure and military products, offsetting soft demand in automotive and aftermarket segments. - Free cash flow doubled compared to last year, attributed to effective working capital management and disciplined capital spending.

• Focus Transformation Program Progress:
• The company made significant progress in its Focus Transformation Program, completing a strategic review and planning to sell the MTS business.
• This decision is expected to optimize the portfolio, enhancing strategic alignment and improving margins.

• Myers aims to deliver $20 million in annualized cost savings, primarily SG&A, by the end of 2025, with $19 million already identified.

• Infrastructure and Military Product Growth:

• Infrastructure and industrial growth offset soft demand in automotive, aftermarket, and vehicle end markets, contributing to higher sales.
• Strong demand in infrastructure was driven by customers switching from wood to composite matting products, while military product demand was fueled by inventory replenishment.

• The company remains confident in the continued growth of these segments due to strong backlogs and demand for high-value products.

• Operational Efficiency and Cost Reduction:

• The company achieved a 150 basis point increase in adjusted gross margin to 33.9%, and a 20 basis point improvement in adjusted operating margin to 10.2%.
• Operating efficiencies were driven by higher volumes, favorable mix, cost productivity, and lower material costs.

• Myers is implementing a continuous improvement mindset to drive further efficiency and cost reductions, primarily in SG&A expenses.

• Dividend and Share Repurchase Strategy:

• Myers repurchased $500,000 in shares during the quarter, bringing the year-to-date total to $2 million.
• The share repurchase program is part of the company's capital allocation strategy to return cash to shareholders alongside ongoing dividends.
• The company maintains ample liquidity, with a cash balance of $48 million and total liquidity of $292.7 million, providing flexibility for capital allocation priorities.

Sentiment Analysis:

Overall Tone: Positive

• Management cited progress: 'on track to deliver $20 million in annualized cost savings,' adjusted EPS up, free cash flow doubled year-over-year, and stated they are 'confident in our ability to improve performance' while pursuing portfolio optimization and operational improvements.

Q&A:

• Question from Christian Zyla (KeyBank): It looks like material handling organic growth flipped to positive — primary driver is Signature. How do you see Signature progressing since acquisition and what additional growth opportunities are you targeting in Signature and maybe in your defense business?
  Response: Signature benefiting from infrastructure tailwinds and a strong innovation pipeline; new product launches in ~2 quarters should sustain growth and margins, while defense opportunities are expanding via ammunition packaging demand.

• Question from Christian Zyla (KeyBank): In defense, any further growth opportunities beyond current contracts — are there additional customers or programs?
  Response: Defense demand is programmatic and expanding as militaries increase consumable packaging needs; management expects continued strong growth, additional programs, and targeted CapEx to support U.S. and NATO customers.

• Question from Christian Zyla (KeyBank): Gross margin held well but SG&A seems high. With the cost-down restructuring, do you expect SG&A dollars to decrease in Q4 or is that a 2026 event?
  Response: SG&A should begin to decline as transformation savings are realized; Q3 included unusual medical/legal items and one-time incentive timing that masked a larger decline, so reductions should materialize going forward.

• Question from Christian Zyla (KeyBank): Free cash flow was about $22M — what drove that and should we expect another solid quarter in Q4?
  Response: Free cash flow improvement driven by working-capital discipline (inventory focus) and lighter CapEx timing in Q3; management expects another strong Q4 though CapEx timing may increase slightly.

• Question from William Dezellem (Titan Capital Management): Please walk through additional opportunities you see with military beyond the current application.
  Response: Military opportunities are programmatic; company has already exceeded its 2025 military target and expects continued strong growth, supported by new programs, product conversions to plastics, and planned CapEx, though program specifics were not disclosed.

Contradiction Point 1

Military Sector Growth Opportunities

It involves differing perspectives on the growth opportunities and market conditions within the military sector, which could impact strategic planning and investor expectations.

Are there additional growth opportunities beyond current contract execution? Are there opportunities for new customers or expansion? - Christian Zyla(KEYBANK)

2025Q3: The military sector will continue to grow due to near peer competition concerns and the need for ammunition packaging. Myers will pursue growth opportunities by expanding offerings and positioning manufacturing to meet future needs. - Aaron Schapper(CEO)

Compared to the sector, could you discuss the additional opportunities you see in the military beyond current applications? - William Dezellem(TITAN CAPITAL MANAGEMENT)

2025Q2: Strong growth expected in military sector, with programmatic growth opportunities in the pipeline. Myers is focused on meeting future needs and capturing growth in plastic product offerings. Continuous addition of new programs and products to support growth. - Aaron Schapper(CEO)

Contradiction Point 2

Backlog Visibility and Sales Guidance

It involves differing perspectives on the visibility and predictability of sales, particularly in relation to backlogs and sales guidance, which could impact strategic planning and investor expectations.

How large is the backlog relative to sales? And what visibility does it provide? - Christian Zyla(KEYBANK)

2025Q3: Our outlook for the fourth quarter of 2025 reflects an expectation of sales to be between $240 million and $250 million, which would imply a decline of approximately 5% to 8% compared to the fourth quarter of 2024. - Sam Ruddy(CFO)

How large is the backlog relative to sales? How much visibility does this provide? - Christian Zyla(KEYCORP)

2025Q2: We're 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. So I think that our -- our guidance is pretty solid at this point. - Daniel Hoehn(CFO)

Contradiction Point 3

Free Cash Flow Expectations

It involves changes in expectations and explanations for free cash flow performance, which are key metrics for investors to evaluate the company's financial health and cash generation capabilities.

What drove the $22 million free cash flow this quarter? Was it due to your recent changes or other factors? Do you expect Q4 to also show strong free cash flow? - Christian Zyla (KeyBank)

2025Q3: Strong free cash flow driven by working capital focus and reduced capital spend. Inventory reductions are a priority, and Q4 is expected to be another good quarter for free cash flow. - Sam Ruddy(CFO)

What caused the quarter's significantly lower free cash flow year-over-year? Is a $15–20 million quarterly free cash flow run rate sustainable? - Christian Zyla (KeyCorp)

2025Q1: 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 2 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 2 items really created a situation where we have a lower than typical historic free cash flow for the business. - Grant Fitz(CFO)

Contradiction Point 4

Defense Business Growth Opportunities

It highlights differing perspectives on the growth opportunities and drivers within the defense business, which is a critical area for the company's strategic expansion and revenue growth.

Are there further growth opportunities in defense? Is this growth driven solely by existing contract performance? Are there opportunities to expand customer base or add new contracts? - Christian Zyla (KeyBank)

2025Q3: The military sector will continue to grow due to near peer competition concerns and the need for ammunition packaging. Myers will pursue growth opportunities by expanding offerings and positioning manufacturing to meet future needs. - Aaron Schapper(CEO)

Have you seen increased orders or qualification activities for your military products in Signature and Scepter? Is the $40 million revenue projection for Scepter's ammunition container contract still on track for 2023? What are your expectations for Scepter's ammunition container contract beyond 2026? - Christian Zyla (KeyCorp)

2025Q1: We're very happy with the order flow in both Scepter and Signature. So, if you're looking at both new customers and new opportunities, I would say that we have both – in both of those areas. We're very happy with the growth of that. The business is performing well. The customers -- we have good relationship with the customers. We're very close. So, we anticipate both of those businesses to have strong growth going not only into this year but looking into next year, we'll be looking at the capital that those businesses need to continue to grow, and we'll make sure that they're funded. - Aaron Schapper(CEO)