Reynolds Consumer Products Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021. The company manufactures and sells cooking, waste and storage, and tableware products under brands including Reynolds and Hefty and through store brands.
Financial performance
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total net revenue | $845 | $757 |
| Gross profit / margin | $168 / 19.9% | $192 / 25.4% |
| Operating income | $80 | $111 |
| Net income | $52 | $74 |
| Diluted EPS | $0.25 | $0.35 |
| Adjusted EBITDA (non-GAAP) | $112 | $140 |
| Operating cash flow | $19 | $9 |
| Capital expenditures | $28 | $23 |
Revenue rose 12%, driven by a 14% pricing contribution, partly offset by a 2% decline in volume/mix. Cost of sales increased 20% to $677 million, including a $105 million increase in material costs, alongside higher labor and logistics costs. SG&A rose 6% to $83 million, primarily due to advertising. Adjusted EBITDA fell 20%; management attributed the decline mainly to higher material, manufacturing, logistics and advertising costs and lower volume, partly offset by pricing.
Segment revenue and Adjusted EBITDA: Reynolds Cooking & Baking $268 million and $28 million (down 1% and 47%); Hefty Waste & Storage $228 million and $45 million (up 18% and 2%); Hefty Tableware $210 million and $23 million (up 24% and down 32%); Presto Products $141 million and $19 million (up 12% and 6%). Cooking & Baking was affected by retailer inventory timing, lower consumption and lower reroll sales; across multiple segments, pricing lagged cost increases.
Cash, debt and liquidity
- Cash was $101 million at March 31, 2022, down from $164 million at year-end 2021. Operating activities provided $19 million; investing used $28 million and financing used $54 million. The $48 million dividend payment was the principal stated quarterly financing outflow.
- Long-term debt was $2.107 billion, including the current portion; the term loan principal was $2.126 billion. The company had no revolver borrowings and $8 million of letters of credit against the $250 million facility. Term loan maturity is February 2027; the revolver matures February 2025.
- Current assets were $1.109 billion and current liabilities $482 million. Inventory increased to $648 million from $583 million at year-end.
- The company reported compliance with debt covenants. Management said projected cash, operating cash flows and revolver availability should cover debt service, capital expenditures and working capital for the foreseeable future, while cautioning that future cash generation and borrowing availability are not assured.
Outlook, risks and other notable items
- Management said it was continuing price increases to address higher material, labor and logistics costs. The filing provides no quantified earnings or revenue guidance.
- The company expected no material COVID-19 impact on liquidity over the next 12 months. It identified risks including input-cost and freight inflation, supply interruptions, customer concentration or loss, competition and pricing pressure, manufacturing disruptions, consumer preference changes, economic downturns, and interest-rate or benchmark-rate changes.
- The board declared a $0.23-per-share dividend for payment May 31, 2022. Management expected to continue quarterly dividends, subject to board discretion, financial condition and contractual limitations.
- Interest-rate swaps covered $800 million notional at March 31, 2022; their reported fair-value asset was $14 million. The filing noted no material change in market-risk exposure during the quarter.
- The company reported no pending legal proceedings with a material outflow considered more than remote and no material changes to the risk factors in its 2021 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether additional pricing can recover input, manufacturing and logistics inflation without further volume or market-share deterioration.
- How elevated inventory and working-capital needs affect subsequent operating cash flow and liquidity.
- Debt repayment capacity, variable-rate exposure after hedges, and compliance with financing covenants.
- Whether segment profitability stabilizes, particularly in Cooking & Baking and Tableware, where Adjusted EBITDA declined substantially.
- The sustainability of dividends relative to cash generation, capital needs and debt obligations.