LAKE FOREST, Illinois
,
August 19, 2022
(press release)
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Continued Pricing Significantly Offsetting Cost Increases Market Share Remains Strong Stepping Up Advertising & Promotion Expanding Reyvolution Cost Savings Reynolds Consumer Products Inc. (“Reynolds,” “RCP” or the “Company”) (Nasdaq: REYN) today reported results for the second quarter ended June 30, 2022. Second Quarter 2022 Highlights Net revenues increased 5% over second quarter 2021 net revenues, driven by price increases, partially offset by a decline in volume. Net income was $52 million, down 35% versus last year’s second quarter net income, and Adjusted EBITDA was $118 million, down 20% versus last year’s second quarter Adjusted EBITDA. The decline in Adjusted EBITDA was driven by lower volume primarily due to declines in foil consumption as well as higher material, manufacturing, logistics and advertising costs, which were significantly offset by price increases across our entire portfolio. “We narrowed the gap between pricing and cost increases in the second quarter and delivered earnings in line with our expectations in spite of slowing demand for foil,” said Lance Mitchell, President and Chief Executive Officer. “The Reynolds Cooking & Baking business unit’s second quarter earnings were down due to lower foil consumption and higher aluminum costs in inventory. We are taking corrective promotional price actions to improve foil trends and have seen consumption declines moderate since late June. We also expect a substantial improvement in Reynolds Cooking & Baking margins during the fourth quarter as we ship foil reflecting lowering aluminum costs. Our cumulative pricing actions and easing commodity costs position us for increasing investment in our categories which we expect will deliver margin improvement in the fourth quarter and full recovery of pre-pandemic profitability in 2023.” Reynolds Cooking & Baking Net revenues decreased 3% as price increases were more than offset by lower foil consumption and reroll volume. Lower volume drove the majority of the Adjusted EBITDA decrease. Material, manufacturing and logistics cost increases in excess of price increases also contributed to the Adjusted EBITDA decrease. Volume decreased 19% driven primarily by lower foil consumption and reroll volume. Timing of retailer replenishment also impacted shipments early in the quarter. Category volume in key categories including parchment, bakeware, foil and cooking bags remains above pre-pandemic levels. Reynolds Wrap volume declines have begun moderating since late June with increased promotions. Reynolds Cooking & Baking also continues to see benefits from product introductions, including Reynolds Wrap Everyday Non-stick Foil, Reynolds Kitchens Unbleached Parchment and Reynolds Kitchens Butcher Paper. Hefty Waste & Storage Net revenues increased 8% as price increases more than offset a volume decline. Adjusted EBITDA increased 2% as price increases offset higher material, manufacturing, and logistics costs as well as higher advertising costs. Volume decreased 3% driven by lower waste and food bag usage as consumers spend less time at home. The Hefty brand was recognized by Ad Age as one of 20 brands gaining Gen Z love in 2022 and was the only major waste bag brand that grew both retail dollar sales and volume in the first half, driven by innovation and base trends, according to IRI. Hefty Fabuloso® was a major driver, extending into high count large black bag packs and new 4 and 8 gallon items and growing to nearly $100 million in annual retail sales in the quarter. Hefty Energy Bag remains the official residential collection program of hard-to-recycle plastics in the U.S. and is expanding to Chattanooga, Tennessee this month. Hefty Tableware Net revenues increased 11% driven by price increases. Adjusted EBITDA decreased 44% as pricing lagged increases in material, manufacturing and logistics costs as well as higher advertising costs. Volume was flat as gains for Hefty disposable plates and private label party cups were offset by declines in other disposable tableware. Hefty Compostable Printed Paper Plates were introduced, and Hefty ECOSAVE™ was a major source of growth again in the quarter. Presto Products Net revenues increased 6% as price increases were partially offset by lower volume. Adjusted EBITDA increased 19% driven by timing of pricing actions to recover higher material, manufacturing, and logistics costs, partially offset by lower volume. Volume decreased 7% driven by lower waste and food bag usage. Presto maintained strong share of private label food bags, and new products remained a major source of growth. Year to Date 2022 Highlights Net revenues increased 8%, driven by price increases, partially offset by lower volume. Net income decreased 32%, and Adjusted EBITDA decreased 20%, reflecting lower volume and the impact of price increases lagging increases in material, manufacturing and logistics costs as well as higher advertising costs. Balance Sheet and Cash Flow Highlights Fiscal Year, Third Quarter and Fourth Quarter Outlook The Company now expects the following results for its fiscal year ending December 31, 2022: The Company also expects Net Debt to be $1.9 billion to $2.0 billion at December 31, 2022. The Company assumes additional elasticity to its expectations from May 2022 and that it effectively manages staffing, third-party manufacturing and logistics related disruptions. The Company estimates 2022 cost pressures of approximately $525 million (previously approximately $450 million). Commodity rates are assumed stable-to-easing versus end of July levels. The Company also expects the following results for its third quarter ending September 30, 2022: The Company also expects the following results for its fourth quarter ending December 31, 2022: “Our pricing actions have significantly offset cost increases in the second quarter, and we have announced additional price increases to enable full recovery of material, manufacturing and logistics cost increases,” said Michael Graham, Chief Financial Officer. “The combination of these price increases and easing commodity costs represents increasing flexibility to invest in our categories, substantial expected margin expansion in the fourth quarter and a strong foundation for additional margin expansion and full recovery of pre-pandemic profitability in 2023. We are also expanding Reyvolution cost savings objectives and have identified multiple opportunities for further gains in efficiencies and profitability.” Quarterly Dividend The Company’s Board of Directors has approved a quarterly dividend of $0.23 per common share. The Company expects to pay this dividend on August 31, 2022, to shareholders of record as of August 17, 2022. Conference Call and Webcast Presentation The Company will host a conference call to discuss these results at 7:00 a.m. Central Time (8:00 a.m. Eastern Time) on Tuesday, August 9, 2022. Investors interested in participating in the live call can dial 877-423-9813 from the U.S. and 201-689-8573 internationally. A telephone replay will be available approximately two hours after the call concludes through Tuesday, August 23, 2022, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13726944. There will also be a simultaneous, live webcast available on the Investors section of the Company’s website at www.reynoldsconsumerproducts.com. The webcast will be archived for 30 days. About Reynolds Consumer Products Inc. RCP’s mission is to simplify daily life so consumers can enjoy what matters most. RCP is a market-leading consumer products company with a presence in 95% of households across the United States. RCP produces and sells products across three broad categories: cooking products, waste and storage products and tableware; that are sold under iconic brands such as Reynolds and Hefty, as well as under store brands that are strategically important to RCP’s customers. Overall, across both branded and store brand offerings, RCP holds the #1 or #2 U.S. market share position in the majority of product categories in which it participates. Note to Investors Regarding Forward Looking Statements This press release contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including our third quarter, fourth quarter and fiscal year 2022 guidance. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “intends,” “outlook,” “forecast”, “committed,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “model”, “assumes,” “confident,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth, management of costs and other disruptions and other strategies, and anticipated trends in our business, including expected levels of commodity costs and volume. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including but not limited to the risk factors set forth in our most recent Annual Report on Form 10-K. For additional information on these and other factors that could cause our actual results to materially differ from those set forth herein, please see our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and subsequent filings. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. REYN-F Reynolds Consumer Products Inc. For the Three Months Ended For the Six Months Ended June 30, June 30, 2022 2021 2022 2021 Net revenues $ 896 $ 847 $ 1,714 $ 1,579 Related party net revenues 21 26 48 50 Total net revenues 917 873 1,762 1,629 Cost of sales (733 ) (665 ) (1,410 ) (1,229 ) Gross profit 184 208 352 400 Selling, general and administrative expenses (91 ) (89 ) (174 ) (167 ) Other expense, net (7 ) (2 ) (12 ) (5 ) Income from operations 86 117 166 228 Interest expense, net (16 ) (12 ) (28 ) (24 ) Income before income taxes 70 105 138 204 Income tax expense (18 ) (25 ) (34 ) (50 ) Net income $ 52 $ 80 $ 104 $ 154 Earnings per share: Basic $ 0.25 $ 0.38 $ 0.50 $ 0.73 Diluted $ 0.25 $ 0.38 $ 0.50 $ 0.73 Weighted average shares outstanding: Basic 209.9 209.8 209.8 209.7 Diluted 209.9 209.9 209.9 209.8 Reynolds Consumer Products Inc. (Unaudited) As of Assets Cash and cash equivalents $ 101 $ 164 Accounts receivable (net of allowance for doubtful accounts of $1 and $1) 259 316 Other receivables 8 12 Related party receivables 8 10 Inventories 734 583 Other current assets 38 19 Total current assets 1,148 1,104 Property, plant and equipment (net of accumulated depreciation of $791 and $752) 684 677 Operating lease right-of-use assets, net 63 55 Goodwill 1,879 1,879 Intangible assets, net 1,046 1,061 Other assets 39 36 Total assets $ 4,859 $ 4,812 Liabilities Accounts payable $ 277 $ 261 Related party payables 46 38 Current portion of long-term debt 25 25 Accrued and other current liabilities 171 160 Total current liabilities 519 484 Long-term debt 2,076 2,087 Long-term operating lease liabilities 52 46 Deferred income taxes 352 351 Long-term postretirement benefit obligation 50 50 Other liabilities 34 38 Total liabilities $ 3,083 $ 3,056 Stockholders’ equity Common stock, $0.001 par value; 2,000 shares authorized; 210 shares issued and outstanding — — Additional paid-in capital 1,383 1,381 Accumulated other comprehensive income 20 10 Retained earnings 373 365 Total stockholders' equity 1,776 1,756 Total liabilities and stockholders' equity $ 4,859 $ 4,812 Reynolds Consumer Products Inc. Six Months Ended June 30, 2022 2021 Cash provided by operating activities Net income $ 104 $ 154 Adjustments to reconcile net income to operating cash flows: Depreciation and amortization 57 53 Deferred income taxes (3 ) (4 ) Stock compensation expense 4 3 Change in assets and liabilities: Accounts receivable, net 57 (40 ) Other receivables 4 3 Related party receivables 3 — Inventories (151 ) (163 ) Accounts payable 22 54 Related party payables 8 (6 ) Income taxes payable / receivable (2 ) (14 ) Accrued and other current liabilities 12 (22 ) Other assets and liabilities (14 ) — Net cash provided by operating activities 101 18 Cash used in investing activities Acquisition of property, plant and equipment (56 ) (73 ) Net cash used in investing activities (56 ) (73 ) Cash used in financing activities Repayment of long-term debt (12 ) (112 ) Dividends paid (96 ) (96 ) Net cash used in financing activities (108 ) (208 ) Net decrease in cash and cash equivalents (63 ) (263 ) Cash and cash equivalents at beginning of period 164 312 Cash and cash equivalents at end of period $ 101 $ 49 Cash paid: Income taxes 37 67 Reynolds Consumer Products Inc. Reynolds Hefty Hefty Presto Unallocated(1) Total Revenues Three Months Ended June 30, 2022 $ 294 $ 238 $ 240 $ 150 $ (5 ) $ 917 Three Months Ended June 30, 2021 303 220 217 142 (9 ) 873 Six Months Ended June 30, 2022 562 466 450 292 (8 ) 1,762 Six Months Ended June 30, 2021 574 414 386 268 (13 ) 1,629 Adjusted EBITDA Three Months Ended June 30, 2022 $ 36 $ 46 $ 25 $ 25 $ (14 ) $ 118 Three Months Ended June 30, 2021 59 45 45 21 (22 ) 148 Six Months Ended June 30, 2022 64 91 48 44 (17 ) 230 Six Months Ended June 30, 2021 111 90 79 38 (30 ) 288 The unallocated net revenues include elimination of intersegment revenues and other revenue adjustments. The unallocated Adjusted EBITDA represents the combination of corporate expenses which are not allocated to our segments and other unallocated revenue adjustments. Components of Change in Net Revenues for the Three Months Ended June 30, 2022 vs. the Three Months Ended June 30, 2021 Price Volume/Mix Total Reynolds Cooking & Baking 16 % (19 )% (3 )% Hefty Waste & Storage 11 % (3 )% 8 % Hefty Tableware 11 % — 11 % Presto Products 13 % (7 )% 6 % Total RCP 14 % (9 )% 5 % Components of Change in Net Revenues for the Six Months Ended June 30, 2022 vs. the Six Months Ended June 30, 2021 Price Volume/Mix Total Reynolds Cooking & Baking 14 % (16 )% (2 )% Hefty Waste & Storage 12 % 1 % 13 % Hefty Tableware 13 % 4 % 17 % Presto Products 14 % (5 )% 9 % Total RCP 13 % (5 )% 8 % Use of Non-GAAP Financial Measures We use non-GAAP financial measures “Adjusted EBITDA,” “Adjusted Net Income,” “Adjusted Earnings Per Share,” and “Net Debt” in evaluating our past results and future prospects. We define Adjusted EBITDA as net income calculated in accordance with GAAP, plus the sum of income tax expense, net interest expense, depreciation and amortization and further adjusted to exclude IPO and separation-related costs. We define Adjusted Net Income and Adjusted Earnings Per Share as Net Income and Earnings Per Share calculated in accordance with GAAP, plus the sum of IPO and separation-related costs. We define Net Debt as the current portion of long-term debt plus long-term debt less cash and cash equivalents. We present Adjusted EBITDA because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions. In addition, our chief operating decision maker uses Adjusted EBITDA of each reportable segment to evaluate the operating performance of such segments. We use Adjusted Net Income and Adjusted Earnings Per Share as supplemental metrics to evaluate our business’ performance in a way that also considers our ability to generate profit without the impact of certain items. We use Net Debt as we believe it is a more representative measure of our liquidity. Accordingly, we believe presenting these metrics provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP financial measures presented by other companies. Guidance for fiscal year, third quarter and fourth quarter 2022, where adjusted, is provided on a non-GAAP basis. The Company cannot reconcile its expected Adjusted EBITDA to expected Net Income under “Fiscal Year, Third Quarter and Fourth Quarter Outlook” without unreasonable effort because certain items that impact net income and other reconciling metrics are out of the Company's control and/or cannot be reasonably predicted at this time, which unavailable information could have a significant impact on the Company’s GAAP financial results. In addition, the Company cannot reconcile its expected Net Debt to expected total debt without reasonable effort because certain items that impact total debt and other reconciling metrics are out of the Company’s control and/or cannot be reasonable predicted at this time, which unavailable information could have a significant impact on the Company’s GAAP financial results. Please see reconciliations of Non-GAAP measures used in this release (with the exception of our third quarter, fourth quarter, and full year 2022 Adjusted EBITDA outlook and our 2022 Net Debt outlook, as described above) to the most directly comparable GAAP measures, beginning on the following page. Reynolds Consumer Products Inc. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income – GAAP $ 52 $ 80 $ 104 $ 154 Income tax expense 18 25 34 50 Interest expense, net 16 12 28 24 Depreciation and amortization 29 27 57 53 IPO and separation-related costs (1) 3 4 7 7 Adjusted EBITDA (Non-GAAP) $ 118 $ 148 $ 230 $ 288 Reflects costs related to the IPO process, as well as costs related to our separation to operate as a stand-alone public company. These costs are included in Other expense, net in our consolidated statements of income. Reynolds Consumer Products Inc. Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Net Diluted Diluted Net Diluted Diluted As Reported - GAAP $ 52 210 $ 0.25 $ 80 210 $ 0.38 Adjustments: IPO and separation-related costs (1) 2 210 0.01 3 210 0.01 Adjusted (Non-GAAP) $ 54 210 $ 0.26 $ 83 210 $ 0.39 Amounts are after tax, calculated using a tax rate of 25.2% and 24.0% for the three months ended June 30, 2022 and 2021, respectively, which is our effective tax rate for the periods presented. Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Net Diluted Diluted Net Diluted Diluted As Reported - GAAP $ 104 210 $ 0.50 $ 154 210 $ 0.73 Adjustments: IPO and separation-related costs (1) 5 210 0.02 5 210 0.02 Adjusted (Non-GAAP) $ 109 210 $ 0.52 $ 159 210 $ 0.75 Amounts are after tax, calculated using a tax rate of 24.8% and 24.5% for the six months ended June 30, 2022 and 2021, respectively, which is our effective tax rate for the periods presented. Reynolds Consumer Products Inc. As of June 30, Current portion of Long-Term debt $ 25 Long-Term debt 2,076 Total Debt 2,101 Cash and Cash Equivalents (101 ) Net Debt (Non-GAAP) $ 2,000 Reynolds Consumer Products Inc. Net Income Diluted Shares Diluted Earnings Per Share Low High Outstanding Low High Q3 2022 - Guidance $ 43 $ 51 210 $ 0.20 $ 0.24 Adjustments: IPO and separation-related costs (1) 2 2 210 0.01 0.01 Q3 2022 - Adjusted Guidance $ 45 $ 53 210 $ 0.21 $ 0.25 Reynolds Consumer Products Inc. Net Income Diluted Shares Diluted Earnings Per Share Low High Outstanding Low High Q4 2022 - Guidance $ 122 $ 137 210 $ 0.58 $ 0.65 Adjustments: IPO and separation-related costs (1) 2 2 210 0.01 0.01 Q4 2022 - Adjusted Guidance $ 124 $ 139 210 $ 0.59 $ 0.66 Reynolds Consumer Products Inc. Net Income Diluted Shares Diluted Earnings Per Share Low High Outstanding Low High Fiscal Year 2022 - Guidance $ 269 $ 292 210 $ 1.28 $ 1.39 Adjustments: IPO and separation-related costs (1) 9 9 210 0.04 0.04 Fiscal Year 2022 - Adjusted Guidance $ 278 $ 301 210 $ 1.32 $ 1.43 Amounts are after tax calculated using a tax rate of 25.0%, which is the Company’s expected tax rate for Q3, Q4, and FY 2022.
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