Reynolds Consumer Products Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 9, 2022. This is an annual report, not a standalone fourth-quarter earnings report. Reynolds sells cooking, waste and storage, and tableware products, including Reynolds and Hefty brands and store-brand products.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total net revenues | $3.556 billion | $3.263 billion |
| Gross profit / margin | $811 million / 22.8% | $973 million / 29.8% |
| Operating income / margin | $478 million / 13.4% | $586 million / 18.0% |
| Net income / diluted EPS | $324 million / $1.54 | $363 million / $1.77 |
| Adjusted EBITDA (non-GAAP) | $601 million | $717 million |
| Operating cash flow | $310 million | $319 million |
| Capital expenditures | $141 million | $143 million |
| Cash and cash equivalents at year-end | $164 million | $312 million |
Revenue rose 9%, driven mainly by price increases and lower trade promotion, with some volume growth. Cost of sales increased 20% to $2.745 billion, including a $391 million increase in material costs and higher labor and logistics costs. As a result, gross margin contracted by about 7 percentage points. Net income fell 11% and Adjusted EBITDA fell 16%. FY2021 effective tax rate was 24.6%, versus 29.7% in FY2020; the prior year included a $27 million discrete CARES Act-related tax expense.
Segments
- Reynolds Cooking & Baking: Revenue $1.314 billion, up 13%; Adjusted EBITDA $255 million, approximately flat.
- Hefty Waste & Storage: Revenue $884 million, up 8%; Adjusted EBITDA $173 million, down 27%.
- Hefty Tableware: Revenue $815 million, up 7%; Adjusted EBITDA $137 million, down 19%.
- Presto Products: Revenue $564 million, up 6%; Adjusted EBITDA $69 million, down 30%.
All four segments’ Adjusted EBITDA declined or was essentially flat as cost inflation outpaced pricing, with the sharpest declines at Presto and Hefty Waste & Storage.
Liquidity, debt and capital allocation
At December 31, 2021, term-loan principal was $2.132 billion; the balance-sheet carrying amount was $2.112 billion after discounts and financing costs. The $250 million revolving facility had no borrowings outstanding and $8 million of letters of credit, leaving approximately $242 million available. Cash was $164 million. The term loan matures in February 2027; the revolver matures in February 2025. The company reported covenant compliance and stated that projected cash, operating cash flow and revolver availability should cover foreseeable needs, while cautioning that future cash generation and borrowing availability are not assured.
Operating cash flow was slightly lower, partly because inventory investment rose amid material-cost inflation; inventory increased to $583 million from $419 million. Financing cash outflow was $317 million, including $192 million of dividends and $125 million of debt repayments, of which $100 million was voluntary term-loan repayment. Dividends declared and paid in 2021 totaled $0.92 per share. A $0.23-per-share dividend was declared for payment in February 2022. Management expects quarterly dividends to continue, subject to board discretion, financial conditions and debt restrictions.
Outlook, commentary and principal risks
- Management said pricing actions lagged material-cost increases and contributed to the earnings decline. It reported a fourth round of price increases implemented in early 2022, alongside cost-reduction initiatives, and expected earnings pressure to improve as cost increases ease and pricing is fully realized. The filing does not provide quantified forward guidance.
- Management cited significant 2021 increases in resin and aluminum costs, as well as higher labor and logistics costs; timing and magnitude of cost easing were uncertain. Pricing may not fully or promptly recover these costs.
- At-home demand remained strong, but management could not predict the duration or magnitude of pandemic-related demand. 2021 comparisons were against a 2020 period that benefited from elevated at-home consumption. The company did not anticipate a material COVID-19 impact on liquidity over the following 12 months.
- Customer concentration is material: Walmart generated 29% and Sam’s Club 15% of 2021 revenue; together they accounted for 44%. The top ten customers represented 67%. Customer bargaining power and loss of a major customer could pressure sales and pricing.
- Other key exposures include commodity, freight, labor and interest-rate volatility; variable-rate debt and the LIBOR transition; supply delays and dependence on certain single-site production; competition; and regulation or changing consumer preferences related to plastics and disposable products.
- Packaging Finance Limited controlled approximately 74% of voting shares. This ownership concentration, related-party arrangements and controlled-company governance exemptions may limit minority-stockholder influence.
- The annual goodwill and indefinite-lived intangible-asset impairment reviews identified no impairment. Legal reserves were not significant, and management reported no pending legal proceedings for which a material outflow was considered other than remote. The auditor gave unqualified opinions on the financial statements and internal control; management also concluded controls were effective.
Important facts for investors to verify
- Whether early-2022 pricing and cost-reduction actions sufficiently offset continuing or easing input, labor and freight inflation—and how that affects margins and segment profitability.
- Whether inventory growth, cash conversion and operating cash flow normalize, and whether cash and revolver availability remain adequate alongside debt service and dividends.
- Debt exposure to variable interest rates, the amount and duration of interest-rate hedges, and the LIBOR replacement arrangements.
- Customer concentration and related-party sales, purchases, logistics costs and service arrangements, including the terms and transition of agreements with PEI Group affiliates.
- Exposure of tableware and other plastic products to environmental regulation, product restrictions and shifts in consumer preferences.
- Non-GAAP Adjusted EBITDA and Adjusted EPS reconciliations; these exclude specified items and should be considered alongside GAAP results.