The distribution segment of Akron, OH-based Myers Industries — which is mainly composed of Myers Tire Supply — saw its net sales decline by $2.45 million, or 6.1 percent, to $37.56 million in the third quarter of 2018. Management attributed the decrease primarily to lower sales volume (roughly $2.70 million), which was offset by higher pricing accounting for about $200,000. According to Myers, a significant portion of the volume decline came from lower equipment and lower international sales.
Segment income from continuing operations (before income taxes) fell 19.9 percent to $2.55 million, while adjusted operating income margin slipped 120 basis points to 6.8 percent.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 18.5 percent to $2.80 million, and adjusted EBITDA margin declined 110 basis points to 7.6 percent because of the lower sales volume, which was partially offset by gross margin expansion driven by a favorable mix of consumables versus equipment, according to the company.
Management anticipates year-to-date declines from the automotive aftermarket to continue in the fourth quarter. For the full year, the expectation is for distribution sales to be down mid- to high-single digits.
President and CEO Dave Banyard told analysts on the company’s Nov. 6 quarterly report conference call that Myers is in the process of implementing a strategic transformation of the distribution business — one that incorporates “a broader set of actions than we have considered in the past.”
“As we progressed through the third quarter, we saw a continued decline in sales performance. We realized it’s going to require additional measures to yield the improved results we desire and at the pace we like to see them materialize,” Banyard said.
He told analysts that, during the third quarter, Myers conducted a thorough review of the distribution business, leading to a number of measures designed to transform this business. “The actions we are taking include a strategic pivot in our go-to-market strategy, which means moving away from our current single channel of the market toward more of a multichannel model, which includes things like an enhanced e-commerce platform,” Banyard stated.
“We are also going to optimize our logistics and distribution infrastructure to make sure we are serving each of our various go-to-market channels as efficiently as possible,” he said. “Finally, we are implementing a wide array of cost-savings measures, including product line and fixed cost rationalization.”
Banyard emphasized in his comments: “This is not a slash-and-burn or simply just a cost-cutting strategy. This is a growth strategy. We are prioritizing areas that we feel we can cut costs and save money upfront, but the purpose of these actions is to help grow the business profitably.”
“We are planning to execute a broad set of actions throughout next year,” he said on the call, “and we expect to start seeing results in our financial performance during the first half of 2019.”
Banyard declined to share additional specifics but said he plans to outline further details during Myers’ year-end earnings call.