Myers to Divest Lawn & Garden Segment - Analyst Blog

Shares of Myers Industries Inc. MYE have dropped 3.6% since it announced the initiation of the sale of its Lawn & Garden Segment. The sale is expected to close within a year.

This Zacks Rank #5 (Strong Sell) company had commenced a two-phased restructuring program for the segment in Feb 2013. The Lawn & Garden segment was underperforming in recent years and was unable to restore its cost of capital.

In its last reported quarter, net sales at the Lawn and Garden segment tanked 17.5% from the year-ago quarter to $49.8 million. Moreover, the segment posted an adjusted loss before taxes of $0.1 million compared to an income of $2.7 million in the prior-year period. Benefits from the ongoing restructuring project were being nullified by inclement weather and transportation costs and adversely impacted results.

Hence, the company decided to divest this segment and concentrate on operations with growth prospects. The Lawn & Garden segment will now form a part of Myer's discontinued operations.

The company, however, envisions potential in its Material Handling segment, which designs recyclable containers, storage bins, and pallets.

In the past quarter, this segment posted a 13.3% rise in net sales to $90.6 million, backed by robust sales in agricultural and food processing markets. Also, the adjusted net income before taxes soared 10% to $10.9 million, facilitated by a greater sales volume.

In an attempt to develop its Material Handling segment, the company penned a deal to acquire Scepter Corporation and Scepter Manufacturing, LLC (Scepter). This acquisition, comprising warehouses, manufacturing facilities and offices in Oklahoma, Scarborough, Miami and Ontario, is expected to hike the segment sales by 30%. Also, Myers expects the acquisition worth $165.0 million to close within a month.

Scepter is a leading manufacturer of molded plastic material handling products for various markets including marine, industrial, consumer and military. The company generated net sales of about $100.0 million in 2013 and is renowned for its state-of-the-art mold capacities and in-house product engineering facilities.

The acquisition of Scepter is likely to enable Myers to strengthen its foothold in the Material Handling segment and extend its global reach. The deal is also expected to enhance its assortments and position the company well for long-term growth in nascent markets.

Simultaneously, the company made amendments to its senior secured revolving credit facility and raised it to $300.0 million from $200.0 million. This increase was made to support the Scepter acquisition. However, the terms of the loan remained unaltered and is slated to end in Dec 2018. The company will use its sale proceeds from the Lawn & Garden segment to repay the loan.

Other Stocks to Consider

Other better-ranked stocks in the related sector include Proto Labs, Inc. (PRLB), Citi Trends, Inc. CTRN and Rite Aid Corporation RAD, each carrying a Zacks Rank #1 (Strong Buy).

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