Reynolds Consumer Products Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in millions of dollars except per-share data. The company 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.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total net revenues | $905 | $823 | $2,534 | $2,375 |
| Gross profit | $182 | $265 | $582 | $706 |
| Gross margin | 20% | 32% | 23% | 30% |
| Income from operations | $100 | $163 | $328 | $420 |
| Net income | $66 | $113 | $220 | $251 |
| Diluted EPS | $0.31 | $0.54 | $1.05 | $1.24 |
| Adjusted EBITDA (non-GAAP) | $132 | $192 | $420 | $519 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $122 | $147 |
Q3 revenue grew 10%, principally from pricing; reported cost of sales rose 30%, including $148 of higher material costs and increased labor and logistics costs. Q3 Adjusted EBITDA fell 31%. For the first nine months, revenue grew 7%, while Adjusted EBITDA declined 19%. Adjusted EBITDA is a non-GAAP measure; the filing reconciles it to GAAP results.
Cash, debt, and liquidity
- Cash and cash equivalents were $70 at September 30, 2021, down from $312 at December 31, 2020. Nine-month cash flow was $122 from operations, $(101) from investing, and $(263) from financing.
- Capital expenditures were $101, including a purchase of a previously leased manufacturing facility. Inventory increased to $615 from $419 at year-end; management attributed working-capital pressure partly to higher material costs and replenishment.
- Term-loan principal was $2,138; reported long-term debt, net of financing costs and discounts and including the current portion, was $2,117. The company made a voluntary $100 principal payment during the period. No revolving-facility borrowings were outstanding; $8 of letters of credit reduced availability under the $250 facility.
- The term loan matures in February 2027; the revolver matures in February 2025. The company said it was in compliance with debt covenants and believed cash, operating cash flow, and revolver availability would meet business needs for at least 12 months.
- Dividends paid were $144 for the first nine months, or $0.69 per share. A $0.23-per-share dividend was declared for payment November 30, 2021. Future dividends remain at the board’s discretion and subject to contractual limits and other factors.
Material changes and segment performance
- Pricing lifted Q3 revenue across segments, but had not yet caught up with sharply higher input costs. Q3 segment Adjusted EBITDA declined year over year in all four segments: Cooking & Baking $56 (down 11%); Waste & Storage $37 (down 43%); Tableware $25 (down 42%); and Presto Products $14 (down 50%).
- For the first nine months, segment Adjusted EBITDA was $167 for Cooking & Baking (down 1%), $127 for Waste & Storage (down 31%), $104 for Tableware (down 13%), and $52 for Presto Products (down 35%).
- Management cited material-cost inflation as the principal earnings headwind, with additional labor and freight/logistics costs. Lower advertising and personnel costs partially offset pressure. Interest expense declined year to date due to lower rates and debt principal; the prior-year tax expense included a $23 discrete CARES Act-related charge.
Outlook, risks, and contingencies
- No quantified earnings or revenue guidance is provided. Management said the timing and magnitude of material-cost easing were uncertain, described price increases and cost-reduction initiatives, and planned a fourth round of price increases for early 2022. It expects earnings pressure to improve as cost increases ease and pricing is fully realized.
- At-home product use remained strong, but the duration of pandemic-related demand is uncertain; management cautioned that 2021 comparisons reflect unusually strong 2020 demand. It did not anticipate a material COVID-19 impact on liquidity over the next 12 months.
- Risks highlighted include raw-material, energy, labor and freight costs; supply interruptions and third-party supplier delays; customer concentration and pricing competition; changing consumer preferences; facility disruptions; COVID-19 uncertainty; and interest-rate or benchmark-rate changes.
- The company reported no pending legal proceedings for which a material outflow was considered more than remote, while noting actual outcomes of claims and examinations could differ from expectations. It reported no material changes to previously disclosed risk factors and no material change in market-risk exposure.
- Disclosure controls were judged effective as of September 30, 2021; no materially affecting change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether announced pricing actions, including the planned early-2022 round, recover ongoing material, labor, and logistics inflation—and how quickly that affects margins.
- Whether inventory and working-capital investment convert to cash, given lower year-to-date operating cash flow and the decline in cash balances.
- Debt repayment, interest-rate exposure and covenant headroom; the filing does not provide a clear current leverage ratio.
- Whether pandemic-era demand persists and whether supplier/import delays and volume trends improve, especially in Tableware and Presto Products.
- Dividend sustainability in light of cash needs, debt terms, and board discretion.