Reynolds Consumer Products(REYN) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the fiscal year 2022, net revenues reached a record $3.8 billion, up 7% from $3.6 billion in the prior year, driven by a 13% increase in pricing due to rising material, manufacturing, and logistics costs, partially offset by lower volume [4][5] - Adjusted earnings per share for the year was $1.28, down from $1.59 in the prior year [5] - Adjusted EBITDA for the fourth quarter was $546 million, down 9% from $601 million in the prior year, attributed to lower volume and higher advertising costs [91] Business Line Data and Key Metrics Changes - The Reynolds Cooking & Baking segment experienced operational inefficiencies and unplanned equipment downtime, leading to disappointing EBITDA results [5][31] - Hefty Waste & Storage and Hefty Tableware segments reported strong performance, with Hefty Waste & Storage gaining household penetration and share in 2022 [17][64] - The Reynolds Cooking & Baking segment is expected to improve throughout 2023, with a return to pre-pandemic profitability anticipated in the second half of the year [41][70] Market Data and Key Metrics Changes - The company entered 2023 with increased market share in its largest categories, with consumption in many categories up 5% or more since 2019 [16][10] - The pricing environment is described as more stable compared to previous years, with selective increases in trade promotions expected in 2023 [34][66] - The company noted that private label shares were down in several categories, indicating a competitive advantage for branded products [20] Company Strategy and Development Direction - The Reynolds Recovery Plan is in place to address operational inefficiencies in the Cooking & Baking segment, focusing on management changes, equipment reliability, and operational excellence [3][15] - The company plans to continue expanding its sustainable product offerings and innovation in 2023, including new Hefty products and increased distribution [18][19] - The company aims to leverage its integrated brand and store brand business model to enhance profitability and market leadership [10][89] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery plan for the Reynolds Cooking & Baking segment and anticipates earnings growth in 2023 [3][10] - The company expects continued pressure from elasticities and flat net revenues for 2023, with pricing expected to be flat to slightly up [66][70] - Management highlighted the importance of operational efficiencies and reduced reliance on supplemental aluminum purchases to improve profitability [41][63] Other Important Information - The company expects SG&A expenses to increase to approximately $420 million in 2023, driven by compensation-related comparisons and increased investments in advertising and market research [66][132] - Capital spending is projected to be approximately $120 million to $130 million for the year [40] Q&A Session Summary Question: What are the specific reasons for expected profitability improvement by Q3? - Management indicated that operational efficiencies, timing of actions implemented, and stable commodity costs are key drivers for expected profitability improvement [83][85] Question: Can you provide details on the drivers of the EBITDA miss? - The company noted that approximately $20 million of the EBITDA miss was due to volume, with $10 million from volume decline, $5 million from metal purchases, and $5 million from operational disruptions [61][127] Question: What is the outlook for cash flows and working capital improvements? - Management expressed confidence in improving working capital and cash flows, emphasizing a focus on managing inventories and accounts payables [96][99] Question: How does the company plan to manage trade promotions in an inflationary environment? - The company plans a 1% increase in trade promotions year-over-year, primarily in segments performing at historical margin levels [108][109] Question: What is the impact of commodity costs on profit targets? - Management stated that they do not purchase aluminum from Russia, so potential tariffs would not impact them, and they expect commodity costs to remain stable [120][121]