Reynolds Consumer Products Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual report includes fourth-quarter results and compares FY2020 with FY2019. The company completed its IPO and separation from PEI Group on February 4, 2020; pre-separation results reflect the business as part of PEI Group and may not represent stand-alone costs.
Business context
Reynolds manufactures and sells cooking, waste and storage, and tableware products under brands including Reynolds and Hefty, as well as store brands. Its four reportable segments are Reynolds Cooking & Baking, Hefty Waste & Storage, Hefty Tableware, and Presto Products. Approximately 98% of FY2020 sales were in the United States. Walmart represented 30% and Sam’s Club 13% of revenue; the top ten customers represented 68%.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total net revenue | $3,263 million | $3,032 million |
| Gross profit / gross margin | $973 million / approximately 30% | $880 million / approximately 29% |
| Operating income / margin | $586 million / approximately 18% | $510 million / approximately 17% |
| Net income | $363 million | $225 million |
| Diluted EPS | $1.77 | $1.45 |
| Adjusted EBITDA (non-GAAP) | $717 million | $655 million |
| Operating cash flow | $319 million | $403 million |
| Capital expenditures | $143 million | $109 million |
Revenue increased 8%, primarily reflecting greater at-home product use during the pandemic and new products; lower pricing, reduced related-party sales, and the prior-year exit from certain low-margin store-brand business partly offset growth. Adjusted EBITDA rose 9%; its margin was approximately 22% in both years. Net income increased 61%, with lower interest expense after the debt restructuring contributing materially. The 2020 effective tax rate was 29.7%, including a $27 million discrete CARES Act-related deferred-tax remeasurement; excluding that item, the company reported a 24.6% rate.
Segment revenue and Adjusted EBITDA were: Reynolds Cooking & Baking, $1,159 million and $254 million; Hefty Waste & Storage, $818 million and $236 million; Hefty Tableware, $763 million and $170 million; and Presto Products, $533 million and $98 million. Hefty Tableware Adjusted EBITDA declined 4%, while the other segments increased.
Fourth-quarter 2020 revenue was $888 million, gross profit $267 million, and net income $112 million, compared with $835 million, $263 million, and $90 million, respectively, in Q4 2019.
Cash, debt, and liquidity
Cash and cash equivalents were $312 million at year-end, versus $102 million a year earlier. Operating cash flow fell $84 million, largely because accounts receivable rose $279 million, including receivables previously sold through PEI Group’s securitization facility. Investing cash outflow was $143 million; financing cash inflow was $34 million.
Year-end term-loan principal was $2,257 million, with $2,233 million reported as debt carrying value including the current portion. The company had no revolver borrowings and $7 million of letters of credit against its $250 million facility. It made $200 million of voluntary term-loan repayments during 2020 and another $100 million after year-end. The term loan matures in February 2027; the revolver matures in February 2025. Interest-rate swaps hedge $1,650 million of variable-rate exposure. Management said projected cash, operating cash flow, and available borrowing capacity should meet needs for at least 12 months; it reported compliance with debt covenants.
Outlook, commentary, and risks
- Management attributed increased demand to a shift toward at-home use but said its duration and magnitude are uncertain. COVID-related costs in 2020 were not material, though they may continue or change. The company did not provide specific financial guidance and did not expect COVID-19 to materially affect liquidity over the next 12 months.
- Stand-alone transition costs were incurred after the IPO and separation; management expected transitional costs to continue into 2021. Ongoing public-company costs, stock-based compensation, and replacement of services previously provided by PEI Group may affect future expenses.
- Key risks include concentrated retail customers and retailer pricing power; fluctuating resin, aluminum, energy, and freight costs; supply or facility disruptions; competition and changing consumer preferences; and environmental rules or consumer concerns about single-use plastics and foam products.
- Other notable risks include variable-rate debt and LIBO benchmark replacement, the company’s substantial leverage, and tax-related indemnification obligations under its separation agreements. PFL controlled approximately 74% of voting shares, limiting other shareholders’ influence. The company intends to continue quarterly dividends, subject to board discretion, debt restrictions, and financial conditions.
- No material legal proceedings were reported, and legal reserves were not significant. No goodwill or indefinite-lived intangible-asset impairment was identified in the 2020 annual review. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation under the newly public company transition rules.
Important facts for investors to verify
- Whether elevated pandemic-era demand persists, and how product demand and seasonality normalize.
- Customer concentration and exposure to Walmart and Sam’s Club, including the reported 43% share from the largest customer and its affiliates.
- Receivables conversion and operating cash flow after ending the PEI Group factoring arrangement.
- Debt repayment pace, interest-rate exposure, covenant headroom, and capacity to sustain dividends alongside investment needs.
- Progress and costs of completing the separation from PEI Group, including transition-service expirations and related-party arrangements.
- Potential effects of plastic-related regulation and sustainability-driven changes in consumer demand.