Reynolds Consumer Products Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Dollar amounts are in millions except per-share data. Reynolds sells cooking, waste and storage, and tableware products under brands including Reynolds and Hefty and store brands, across four reportable segments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total net revenues | $935 | $967 | $2,750 | $2,729 |
| Gross profit / margin | $249 / 27% | $178 / 18% | $633 / 23% | $530 / 19% |
| Income from operations / margin | $134 / 14% | $83 / 9% | $306 / 11% | $249 / 9% |
| Net income / margin | $78 / 8% | $48 / 5% | $161 / 6% | $152 / 6% |
| Diluted EPS | $0.37 | $0.23 | $0.77 | $0.72 |
| Adjusted EBITDA (non-GAAP) | $165 | $116 | $398 | $346 |
Q3 revenue fell 3%, primarily on lower volume, partly offset by prior pricing actions. Nine-month revenue increased 1%, as pricing more than offset lower volume. Management attributed improved earnings in both periods mainly to pricing and lower material, manufacturing and logistics costs. Higher SG&A partly offset those benefits; interest expense also increased.
- Q3 segment results: Adjusted EBITDA increased at Reynolds Cooking & Baking to $51 (from $33), Hefty Waste & Storage to $71 (from $44), Hefty Tableware to $41 (from $24), and Presto Products to $31 (from $23). Revenue declined in Cooking & Baking, Tableware and Presto; Waste & Storage revenue grew 3%.
- Nine-month segment results: Adjusted EBITDA rose at Waste & Storage to $188 (from $135), Tableware to $117 (from $72), and Presto to $78 (from $67); Cooking & Baking decreased to $94 (from $97). Corporate/unallocated expenses increased to $79 from $25.
- SG&A increased 28% to $115 in Q3 and 24% to $327 for nine months, attributed to personnel, advertising and professional fees. Net interest expense rose 55% to $31 in Q3 and 90% to $91 for nine months, primarily due to higher interest rates.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $423, versus $118 in 2022, driven primarily by improved earnings and lower working capital; inventory reductions contributed $146 to operating cash flow.
- Capital expenditures were $77, compared with $86. Financing cash outflow was $260, including $144 of dividends and a $100 voluntary term-loan principal payment. Cash rose by $86 to $124.
- At September 30, long-term debt had a carrying value of $1,981; term-loan principal was $1,995. The term loan matures in February 2027. The $250 revolving facility matures in February 2025; it had no borrowings and $6 of letters of credit outstanding. The company reported compliance with debt covenants.
- After quarter-end, Reynolds made an additional voluntary $100 term-loan payment. Management said projected cash, operating cash flow and revolver availability should meet debt service, capital expenditure and working-capital needs for the foreseeable future, while cautioning that future cash generation and borrowing availability cannot be assured.
- Dividends paid were $0.23 per share quarterly ($0.69 per share year to date). A further $0.23 dividend was approved for payment November 30, 2023; future dividends remain at the board’s discretion.
Outlook, risks and unusual items
The filing provides no specific numerical earnings or revenue guidance. Management cited pricing actions and lower input, manufacturing and logistics costs as supports to results, with lower volume and higher SG&A as offsets. Key disclosed risks include consumer preference changes, competition and pricing pressure, major-customer concentration or loss, supply and manufacturing disruptions, raw-material, energy, labor and freight costs, inflation, economic downturns, and interest-rate changes.
- Legal matters include employment, consumer, personal-injury and commercial disputes. Management did not expect current matters, individually or collectively, to have a material adverse effect, but noted outcomes could differ and affect future periods.
- A voluntary supplier-finance program began in March 2023; $18 of confirmed obligations were outstanding at September 30. The company stated supplier participation does not change its payment terms or directly affect its liquidity or cash flows.
- Related-party sales to PEI Group were $21 in Q3 and $61 year to date; purchases were $92 and $291, respectively. PFL, which owns a majority of Reynolds, received $107 of year-to-date dividends.
- The company reported effective disclosure controls and no material change in internal control during the quarter. It reported no material changes in risk factors from its 2022 Form 10-K.
Important facts for investors to verify
- Whether improved gross margins and Adjusted EBITDA persist as pricing, input costs and logistics costs change, particularly if volume remains weak.
- How higher interest expense and subsequent $100 debt repayment affect future interest costs, cash generation and leverage.
- Whether SG&A growth and increased corporate/unallocated expenses moderate.
- The basis and sustainability of the company’s liquidity and dividend outlook, including debt covenants and contractual dividend restrictions.
- Developments in customer, supplier, legal and related-party exposures, including the supplier-finance obligations.