Reynolds Consumer Products Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in millions of dollars, except per-share data. The company sells cooking, waste and storage, and tableware products under Reynolds, Hefty, and store brands through four reportable segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Total net revenues | $873 | $822 | $1,629 | $1,552 |
| Gross profit | $208 | $252 | $400 | $441 |
| Income from operations | $117 | $165 | $228 | $257 |
| Net income | $80 | $112 | $154 | $138 |
| Diluted EPS | $0.38 | $0.53 | $0.73 | $0.69 |
| Adjusted EBITDA (non-GAAP) | $148 | $193 | $288 | $328 |
| Operating cash flow | — | — | $18 | $3 |
- Q2 total revenue rose 6%, with pricing contributing $36 million and volume $15 million. Cost of sales increased 17%, primarily from higher material costs and volume. Gross margin fell to about 24% from 31%; operating margin was about 13% versus 20%.
- First-half revenue increased 5%, while gross profit declined 9%. Adjusted EBITDA fell 12% for the half and 23% in Q2, reflecting material, manufacturing, and logistics cost increases that outpaced pricing recovery.
- First-half operating cash flow was $18 million; capital expenditures were $73 million, implying approximately negative $55 million of operating cash flow less capital expenditures. Cash declined to $49 million from $312 million at year-end, after $208 million of financing outflows, including $112 million of debt repayment and $96 million of dividends.
- At June 30, cash was $49 million and current assets and liabilities were $1,004 million and $455 million, respectively. Debt carrying value was $2,122 million, including $25 million current and $2,097 million long-term; revolving-facility borrowings were zero, with $8 million of letters of credit outstanding. The company reported covenant compliance.
Changes and segment results
- Q2 revenue growth was led by Hefty Tableware, up 17% to $217 million, as social gatherings and everyday usage strengthened. Hefty Waste & Storage rose 8% to $220 million; Reynolds Cooking & Baking and Presto Products each rose 3%.
- Q2 segment Adjusted EBITDA declined at Reynolds Cooking & Baking ($59 million, down 11%), Hefty Waste & Storage ($45 million, down 29%), and Presto Products ($21 million, down 25%). Hefty Tableware increased 5% to $45 million.
- For the first half, Hefty Waste & Storage Adjusted EBITDA fell 24% to $90 million and Presto Products fell 25% to $38 million. Reynolds Cooking & Baking increased 5% to $111 million; Hefty Tableware was nearly flat at $79 million.
- Q2 interest expense declined to $12 million from $17 million; first-half interest expense declined to $24 million from $44 million, mainly due to lower rates and lower debt. First-half 2020 net income included a $23 million discrete tax expense related to the CARES Act deferred-tax remeasurement, helping explain why first-half 2021 net income increased despite lower operating income.
Outlook, commentary, and risks
- No specific full-year revenue or earnings guidance is provided. Management expects material-cost increases to continue in the near term before easing in Q4 2021, and expects earnings pressure from delayed cost recovery to improve into Q4.
- The company implemented two price increases and announced a third expected to take effect in Q3 2021. Management cited shipment delays from import and other third-party suppliers, which reduced Q2 volume by approximately two percentage points.
- At-home product use remained strong, but management cautioned that pandemic-related demand may not persist and that the timing and scale of future COVID-19 effects are uncertain. The company did not anticipate a material COVID-19 impact on liquidity over the next 12 months.
- Key disclosed risks include raw-material, energy, and freight costs; supplier or facility disruptions; customer relationships and concentration; competition and pricing pressure; changing consumer preferences; and the uncertain duration and effects of COVID-19. Management reported no material change in risk factors from its 2020 Form 10-K.
- The company expects to continue quarterly dividends, subject to board discretion and contractual and financial considerations. A $0.23-per-share dividend was declared July 29, 2021, payable August 31, 2021. Legal matters were not considered likely to have a material adverse effect; no pending proceedings were reported beyond matters with a remote possibility of material outflow.
Important facts for investors to verify
- Whether announced pricing actions and anticipated Q4 cost relief restore margins, particularly in Hefty Waste & Storage and Presto Products.
- Whether supplier delays, elevated raw-material and logistics costs, and inventory needs persist; inventories rose to $582 million from $419 million at year-end.
- Cash generation and liquidity after dividends, capital spending, and voluntary debt repayment; first-half operating cash flow was modest relative to capex.
- The company’s ability to sustain demand as pandemic-driven pantry loading and at-home use normalize, alongside the continued performance of Hefty Tableware.
- Related-party exposure: first-half sales to PEI Group were $50 million, purchases were $162 million, and $71 million of dividends were paid to PFL, an affiliate and majority shareholder.
- Adjusted EBITDA and other adjusted measures are non-GAAP; assess them alongside GAAP earnings and the filing’s reconciliations.