Reynolds Consumer Products Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars; financial figures are in millions except per-share data.
Business context
Reynolds sells cooking, waste and storage, and tableware products under brands including Reynolds and Hefty, as well as store brands. It reports four segments: Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware, and Presto Products. Sales are concentrated in North America; the United States represented 97% of 2023 sales. The business is moderately seasonal, with overall sales typically strongest in the fourth quarter.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total net revenue | $3,756 | $3,817 | Down 2% |
| Gross profit / margin | $942 / 25% | $776 / 20% | Margin up 5 percentage points |
| Operating income / margin | $512 / 14% | $414 / 11% | Up 24% |
| Net income | $298 | $258 | Up 16% |
| Diluted EPS | $1.42 | $1.23 | Up $0.19 |
| Adjusted EBITDA (non-GAAP) | $636 | $546 | Up 16% |
| Operating cash flow | $644 | $219 | Up $425 |
| Capital expenditures | $104 | $128 | Down $24 |
Revenue declined mainly because of lower volumes, partly offset by higher retail pricing. Cost of sales fell 7%, reflecting lower material, manufacturing and logistics costs. SG&A rose 26% to $430 million, largely due to personnel costs, higher advertising and professional fees. Net interest expense increased 57% to $119 million as rates rose. The effective tax rate was 24.1%, compared with 23.6%.
Cash generation benefited from improved earnings and working-capital initiatives, including a $198 million reduction in inventories. Financing cash outflow was $457 million, including $250 million of voluntary term-loan repayments and $192 million of dividends. Cash at year-end was $115 million, versus $38 million a year earlier.
Segments and material changes
- Reynolds Cooking & Baking: Revenue $1,273 million, down 1%; Adjusted EBITDA $184 million, up 30%. Retail revenue growth was offset by a $71 million decline in non-retail revenue.
- Hefty Waste & Storage: Revenue $942 million, approximately flat; Adjusted EBITDA $261 million, up 26%.
- Hefty Tableware: Revenue $967 million, down 3%; Adjusted EBITDA $174 million, up 30%.
- Presto Products: Revenue $593 million, down 2%; Adjusted EBITDA $112 million, up 17%.
Each segment’s EBITDA improvement was attributed principally to earlier pricing actions and lower material, manufacturing and logistics costs, with volume declines and increased advertising partly offsetting gains. The company acquired Atacama Manufacturing Inc. in 2023; the acquisition had no material financial statement impact and resulted in $16 million of provisional goodwill.
Debt, liquidity and capital allocation
At year-end, term-loan principal was $1,845 million, due in February 2027. The revolving facility, maturing in February 2026, had no borrowings and $244 million of available capacity after letters of credit. The company had $1,150 million of interest-rate swaps in place; approximately $695 million of term-loan principal remained unhedged. Management said projected cash, operating cash flow and revolver availability should cover foreseeable debt service, capital expenditures and working-capital needs, while cautioning that future cash flow and borrowing availability are not assured.
The company reported compliance with debt covenants. It declared and paid dividends of $0.92 per share in 2023 and declared a further $0.23-per-share dividend in January 2024. Future dividends remain at the board’s discretion and subject to debt restrictions and other factors.
Outlook, risks and unusual items
The filing provides no numerical FY2024 revenue or earnings guidance. Management discusses continued investment in innovation, sustainability and both branded and store-brand products, but results remain exposed to consumer demand, pricing and volume trends, and input costs.
- Customer concentration: Walmart represented 30% and Sam’s Club 18% of 2023 revenue; together they are affiliated and accounted for 48%. The top ten customers represented 72%.
- Cost and operating exposure: Resin, aluminum, energy, labor and freight prices can fluctuate; customer contracts generally do not fully pass through cost changes. Certain products depend on single-site manufacturing.
- Environmental and regulatory exposure: Restrictions on plastics and foam, product-content and recycling rules, and requirements for environmental claims could affect demand, costs and operations.
- Debt and rates: Variable-rate borrowing creates interest-rate exposure; a 100-basis-point rate move on unhedged term debt was estimated to change annual interest expense by about $7 million.
- Ownership and governance: PFL controlled approximately 74% of voting power, making the company a Nasdaq controlled company and allowing reliance on certain governance exemptions.
- Unusual items and contingencies: No IPO or separation costs were recorded in 2023, compared with $12 million in 2022. Ordinary-course legal matters were not considered material by management; reserves were not significant. Goodwill and indefinite-lived intangible assets were not impaired in the 2023 annual review.
The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting, which it judged effective. Revenue recognition for certain customer contracts, including estimates of sales incentives, was identified as a critical audit matter.
Investor facts to verify
- Whether volume trends and customer pricing affect revenue and margins after the 2023 recovery in gross margin.
- How much of the operating cash-flow increase is sustainable after the inventory reduction and other working-capital benefits.
- Debt repayment capacity, refinancing needs ahead of the 2027 term-loan maturity, and sensitivity to rates on unhedged borrowings.
- Sales and commercial exposure to Walmart, Sam’s Club and related-party arrangements with PEI Group.
- Potential effects of plastic, foam and sustainability regulation on Hefty Tableware and other product lines.
- Assumptions behind trade-promotion accruals, goodwill and brand valuations, and the Atacama acquisition’s eventual performance.