Reynolds Consumer Products Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020. Amounts are in millions of dollars except per-share data. The company sells cooking, waste and storage, and tableware products through Reynolds, Hefty, and store brands across four reportable segments.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total net revenues | $757 | $730 | +4% |
| Gross profit / margin | $192 / 25% | $189 / 26% | Margin down 1 percentage point |
| Income from operations | $111 | $92 | +21% |
| Net income | $74 | $26 | +$48 |
| Diluted EPS | $0.35 | $0.14 | +$0.21 |
| Adjusted EBITDA (non-GAAP) | $140 | $135 | +4%; 18% of revenue in both periods |
| Operating cash flow | $9 | $(255) | Improved by $264 |
| Capital expenditures | $(23) | $(23) | No change |
Net income and EPS benefited in comparison with Q1 2020, which included a $23 million discrete tax expense related to the CARES Act deferred-tax remeasurement. Q1 2021 net income also reflected lower interest expense and lower IPO/separation costs. Adjusted net income was $76 million, or $0.36 per diluted share, versus $63 million, or $0.30, using the filing’s comparable share-count adjustment.
Segments and material changes
- Reynolds Cooking & Baking: Revenue rose 12% to $272 million; Adjusted EBITDA increased 33% to $53 million. Higher at-home demand and pricing contributed to growth.
- Hefty Waste & Storage: Revenue increased 1% to $194 million, while Adjusted EBITDA fell 20% to $44 million, pressured by higher material, manufacturing, and logistics costs.
- Hefty Tableware: Revenue fell 4% to $170 million; Adjusted EBITDA declined 3% to $34 million, reflecting lower volume and higher costs.
- Presto Products: Revenue declined 1% to $126 million; Adjusted EBITDA fell 22% to $18 million, primarily on higher material and manufacturing costs.
Consolidated revenue growth was driven mainly by higher pricing, including fewer promotions and price increases in response to commodity costs. Cost of sales rose 4%, and gross margin narrowed. Management attributed lower volume in several segments partly to severe February winter storms, which it estimated reduced first-quarter revenue by approximately two percentage points. Cooking products grew 12%; tableware declined 4%.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $144 million at March 31, 2021, down from $312 million at year-end 2020. The company reported $9 million of operating cash inflow and $154 million of financing cash outflow, including a $100 million voluntary term-loan principal payment and $48 million of dividends paid.
- Long-term debt was $2.102 billion, plus a $25 million current portion; term-loan principal outstanding was $2.150 billion. The $250 million revolving facility had no borrowings and $7 million of letters of credit outstanding.
- The term loan matures in February 2027; the revolver matures in February 2025. The company reported compliance with debt covenants. Its springing financial covenant applies to the revolver only if borrowings and unreimbursed letters of credit exceed 35% of commitments.
- The company declared a $0.23 per-share quarterly dividend, paid during the quarter, and declared another $0.23 dividend payable May 27, 2021. Future dividends remain subject to board discretion and contractual and financial considerations.
Outlook, risks, and other notable items
- Management said significant input-cost pressures were continuing. Pricing actions had been implemented, a second round was underway, and a third was planned for Q3 2021. On an annualized basis, management expected aggregate pricing actions to cover input-cost increases, but anticipated near-term margin pressure before sequential expansion in Q3 and Q4. This is commentary, not formal earnings guidance.
- Management said it could not reliably predict the duration or magnitude of pandemic-related demand. At-home demand remained elevated, but 2021 comparisons would face prior-year pandemic-driven demand, which might not persist. It did not anticipate a material COVID-19 impact on liquidity over the next 12 months.
- Risks include commodity, freight, energy, and manufacturing costs; supply-chain disruption; customer concentration and competitive pricing; changing consumer preferences; and uncertain COVID-19 effects. The filing estimated storm-related disruption and noted continuing short-term impacts.
- Routine litigation and tax matters were disclosed; management did not believe pending matters would have a material adverse effect, and stated no other legal proceedings had a material outflow possibility. No material changes to the prior annual-report risk factors were reported.
- After quarter-end, the company purchased a previously leased building for $24 million. It also approved the May dividend noted above.
Important facts for investors to verify
- Whether pricing actions keep pace with input, freight, and manufacturing cost inflation, and how quickly margins respond.
- Whether pandemic-related at-home demand persists and how post-pandemic comparisons affect volumes.
- Whether winter-storm impacts and inventory replenishment unwind; inventories increased to $507 million from $419 million at year-end.
- Cash generation and liquidity following the $168 million quarterly cash decline, dividends, and debt repayment.
- Debt reduction, interest-rate exposure, and the company’s ability to maintain dividends within covenant and capital-allocation constraints.
- Segment trends, especially the EBITDA declines in Hefty Waste & Storage and Presto Products.