Reynolds Consumer Products Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Figures are in millions of dollars except per-share data. Comparisons are with Q1 2022 unless otherwise noted.
Business context
Reynolds makes and sells cooking, waste and storage, and tableware products, including Reynolds and Hefty brands and store-brand products. It reports four segments: Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware, and Presto Products.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total net revenues | $874 | $845 | +3% |
| Gross profit / margin | $155 / 17.7% | $168 / 19.9% | Down $13; margin down 2.2 percentage points |
| Income from operations / margin | $52 / 5.9% | $80 / 9.5% | Down $28 |
| Net income / diluted EPS | $17 / $0.08 | $52 / $0.25 | Down $35 / $0.17 |
| Adjusted EBITDA (non-GAAP) | $82 | $112 | Down 27% |
| Operating cash flow | $88 | $19 | Up $69 |
Revenue growth reflected a 5% pricing contribution, partly offset by a 2% decline in volume/mix. Cost of sales rose 6% to $719, and SG&A rose 27% to $105. Interest expense increased to $29 from $12, mainly because of higher interest rates. The effective tax rate was 24.9%, versus 24.3%.
Segment Adjusted EBITDA was $4 for Reynolds Cooking & Baking (down from $28), $55 for Hefty Waste & Storage (up from $45), $30 for Hefty Tableware (up from $23), and $19 for Presto Products (unchanged). Management attributed the sharp Cooking & Baking decline mainly to higher material and manufacturing costs.
Cash flow, debt and liquidity
- Operating cash flow was $88; capital expenditures were $22. Investing cash outflow was $22, and financing cash outflow was $54, including $48 of dividends and $6 of debt repayments. Cash increased $12 to $50.
- Cash and cash equivalents were $50 at March 31, versus $38 at December 31, 2022. Current assets were $1,133 and current liabilities were $490.
- Term-loan principal was $2,101; carrying debt was $2,086, including current debt of $25. The term loan matures in February 2027. No revolving-facility borrowings were outstanding; $7 of letters of credit reduced the $250 facility’s available capacity.
- In February 2023, the company amended its debt facilities and interest-rate swaps to replace LIBOR with SOFR. Swaps covered $1,150 of notional debt, with a reported weighted-average effective annual rate of 4.38%. The company stated it was in covenant compliance.
- Quarterly dividends of $0.23 per share were declared and paid; the board approved another $0.23 dividend for payment May 31, 2023. Future dividends remain at the board’s discretion.
Material changes, outlook and risks
Management said revenue increased due to pricing actions responding to material and manufacturing cost inflation, while lower volume partly offset the increase. Earnings fell as cost inflation in Cooking & Baking and higher personnel, professional-fee and advertising costs outweighed gains elsewhere; higher interest costs also reduced net income. Operating cash flow benefited mainly from working-capital initiatives.
The filing provides no quantitative earnings or revenue guidance. Management said projected cash, operating cash flows and revolving-facility availability should meet debt service, capital expenditure and working-capital needs for the foreseeable future, while cautioning that future cash generation and borrowing availability are not assured.
Risks highlighted include shifts in consumer preferences, customer concentration or loss, competition and pricing pressure, supply or manufacturing disruptions, raw-material, energy, labor and freight costs, inflation, economic downturns, interest-rate changes, and challenges to growth and innovation. The company reported no material changes to its annual-report risk factors and no material change in market-risk exposure. It stated that pending legal matters were not expected to have a material adverse effect based on its assessment, though outcomes could differ.
Related-party sales to PEI Group were $22, while purchases were $106; freight and warehousing charges were $9. The company initiated a voluntary supplier-finance program in March and reported no confirmed outstanding obligations under it at quarter-end. It said supplier participation does not change its payment terms or directly affect liquidity.
Important facts for investors to verify
- Whether pricing can continue to offset input costs without further volume declines, particularly in Cooking & Baking.
- Whether the Q1 working-capital benefit to operating cash flow is repeatable.
- Debt-service sensitivity to interest rates, including the portion of debt hedged and the terms of the SOFR-based facilities.
- Liquidity headroom, covenant conditions, and the company’s capacity to sustain dividends alongside debt service and investment needs.
- Related-party transaction terms and ongoing supplier-finance disclosures; the filing reports no confirmed SCF obligations at March 31, 2023.