Reynolds Consumer Products Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company sells cooking, waste and storage, and tableware products, including Reynolds and Hefty brands and store-brand products, across four reportable segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total net revenues | $917 million (+5%) | $873 million | $1,762 million (+8%) | $1,629 million |
| Gross profit / margin | $184 million / 20% | $208 million / 24% | $352 million / 20% | $400 million / 25% |
| Income from operations | $86 million | $117 million | $166 million | $228 million |
| Net income | $52 million; diluted EPS $0.25 | $80 million; diluted EPS $0.38 | $104 million; diluted EPS $0.50 | $154 million; diluted EPS $0.73 |
| Adjusted EBITDA (non-GAAP) | $118 million (-20%) | $148 million | $230 million (-20%) | $288 million |
| Operating cash flow | Not separately provided for the quarter | $101 million | $18 million |
Q2 operating margin was approximately 9%, versus 13% in the prior-year quarter; net margin was approximately 6%, versus 9%. For the first half, operating margin was approximately 9%, versus 14%, and net margin approximately 6%, versus 9%.
Liquidity, debt and capital
- Cash and cash equivalents were $101 million at June 30, 2022, down from $164 million at year-end 2021. Current assets were $1.148 billion and current liabilities $519 million.
- Long-term debt had a $2.119 billion principal balance and a $2.101 billion carrying value, including current maturities. The term loan matures in February 2027; the $250 million revolving facility matures in February 2025. No revolver borrowings were outstanding; $8 million of letters of credit reduced capacity.
- First-half investing cash outflow was $56 million, including $56 million of capital expenditures. Financing cash outflow was $108 million, including $96 million of dividends and $12 million of debt repayments.
- Inventory rose to $734 million from $583 million at December 31, 2021. The company began selling receivables under a facility of up to $190 million; $106 million had been factored by June 30. Management says proceeds from factoring contributed to the year-over-year increase in operating cash flow.
- The company paid quarterly dividends of $0.23 per share and declared another $0.23 dividend for payment August 31, 2022. Future dividends remain at the board’s discretion and subject to financial and contractual factors.
Material changes and management commentary
- Revenue growth was driven by pricing actions in response to higher material, manufacturing and logistics costs, partly offset by lower volume. First-half price/mix increased 13%, while volume/mix declined 5%.
- Cost of sales rose 10% in Q2 and 15% in the first half. Management cited material-cost increases of $87 million in Q2 and $192 million in the first half, along with higher manufacturing and logistics costs.
- Q2 segment performance was uneven: Reynolds Cooking & Baking revenue fell 3% and Adjusted EBITDA fell 39%; Hefty Waste & Storage revenue rose 8% and EBITDA 2%; Hefty Tableware revenue rose 11% while EBITDA fell 44%; Presto Products revenue rose 6% and EBITDA 19%.
- For the first half, Reynolds Cooking & Baking EBITDA fell 42% and Hefty Tableware EBITDA fell 39%. Hefty Waste & Storage EBITDA was up 1%, and Presto Products EBITDA was up 16%.
- Management said pricing was intended to recover cost inflation, but in some segments price increases lagged costs. Lower foil consumption, lower reroll sales and retailer inventory-replenishment timing weighed on Reynolds Cooking & Baking. Advertising costs also increased.
- Management believes cash, operating cash flow (including receivables factoring) and revolver availability should meet debt service, capital spending and working-capital needs for the foreseeable future, while cautioning that future cash generation and borrowing availability are not assured. The filing provides no specific earnings or revenue guidance.
Risks, contingencies and unusual items
- Key cited risks include raw-material, energy, labor and freight costs; supply interruptions; pricing and competition; customer concentration; consumer preferences; manufacturing disruptions; economic conditions; and interest-rate or LIBOR-transition exposure.
- Interest expense increased to $16 million in Q2 from $12 million and to $28 million in the first half from $24 million. Interest-rate swaps had $1.4 billion aggregate notional at June 30, 2022; the company reported compliance with debt covenants.
- The company reported no pending legal proceedings for which a material outflow was considered more than remote, but noted that actual outcomes could differ and affect future results. It reported no material changes to its previously disclosed risk factors or market-risk exposure.
- Other expense increased, partly due to changes in deferred-compensation-plan assets. The company also incurred IPO and separation-related costs of $3 million in Q2 and $7 million in the first half; Adjusted EBITDA and other adjusted measures are non-GAAP.
Important facts for investors to verify
- Whether price increases can catch up with input, manufacturing, logistics and advertising costs without further weakening volume.
- Whether the $106 million receivables-factoring contribution to operating cash flow is sustainable and how factoring costs affect earnings.
- Inventory levels, cash conversion and working-capital trends, given the $151 million increase in inventory since year-end.
- Debt service and interest-rate sensitivity, including swap coverage, refinancing needs and compliance with facility covenants.
- Segment recovery—particularly in Cooking & Baking and Tableware—and the continued payment of dividends amid lower earnings.