First Quarter 2020 Results Exceed
Expectations
Provides Update on Annual 2020
Outlook
Reynolds Consumer Products Inc. (“Reynolds,” “RCP” or the
“Company”), today reported results for the first quarter 2020 ended
March 31, 2020.
“Despite the challenges of the COVID-19 global pandemic, we were
still able to achieve a strong start to the year,” said Lance
Mitchell, Reynolds Consumer Products President and Chief Executive
Officer. “Our hearts go out to those who are directly or indirectly
affected by the pandemic, the serious impacts of which we could not
anticipate. Our ability to continue to operate as an essential
business is a direct result of our safety culture and management
teamwork.”
Mitchell continued, “RCP plant leaders were able to quickly
implement procedures and processes that met or exceeded CDC
guidelines in our operations to minimize risk, even ahead of state
or local mandates. Updated attendance policies for essential
workers have allowed flexibility for employees who may have been
exposed to COVID-19 to stay home and self-isolate.”
“We quickly implemented a work from home policy for all
employees who could do so, successfully transitioning nearly all
functions remotely, including our Customer Service, Sales, and
Supply Chain teams working with customers and suppliers to
accommodate increased demand.”
“We are pleased to support our retail partners. They are
continuing to serve the nation’s consumers by implementing
additional safety precautions through challenging conditions. We
thank them for leading the way as an example through this pandemic
and providing essential products to consumers.”
First Quarter 2020 Financial Highlights:
- Net Revenues of $730 million
- Earnings Per Share of $0.14; Adjusted Earnings Per
Share of $0.301
- Net Income of $26 million; Adjusted Net Income of
$63 million1
- Adjusted EBITDA of $135 million1
First Quarter 2020 Results
Net revenues in the first quarter of 2020 were $730 million
compared to $665 million in the prior year period. The 10% increase
was primarily driven by the increased demand due to the consumer
response to the COVID-19 pandemic. This was due to both increased
usage as consumers shifted to spending more time at home and pantry
stocking of certain of Reynolds products. In addition to the
increased demand due to the COVID-19 pandemic, volume increases
were driven by both organic growth with existing customers and the
soft first quarter of 2019 as a result of the unusually high demand
in the fourth quarter of 2018. These benefits were partially offset
by the exit of certain low margin store branded business in the
prior year and lower pricing.
Net Income increased $9 million to $26 million in the first
quarter of 2020 compared to the first quarter of 2019 and Adjusted
Net Income was $63 million for the first quarter of 2020. The
increase in Net Income was primarily driven by strong volume and
lower interest expense as the Company transitioned from a related
party capital structure prior to its initial public offering
(“IPO”) that carried significantly higher interest expense compared
to the Company’s new debt structure that went into effect in
conjunction with its IPO. These benefits were partially offset by a
one-time tax expense associated with legislation change from the
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
and IPO transaction-related costs, both of which have been excluded
from the computation of the Company’s Adjusted Net Income in the
first quarter of 2020.
Adjusted EBITDA was $135 million in the first quarter of 2020
compared to $110 million in the first quarter of 2019. The increase
was primarily due to increased volume and lower material and
manufacturing costs.
Key Segment Results (compared to the first quarter of
2019)
Reynolds Cooking & Baking
- Net revenues increased $30 million, or 14%
- Adjusted EBITDA increased $22 million, or 122%
The increase in net revenues was mainly due to increased
consumer demand associated with the COVID-19 pandemic and the soft
first quarter of 2019 due to unusually high demand in the fourth
quarter of 2018. Lower pricing, as a result of lower material costs
and increased trade promotion spend, partially offset the volume
increases.
The increase in Adjusted EBITDA was due to the increase in net
revenues and lower material and manufacturing costs, partially
offset by the impact of lower pricing.
Hefty Waste & Storage
- Net revenues increased $27 million, or 16%
- Adjusted EBITDA increased $16 million, or 41%
The increase in net revenues was mainly due to increased
consumer demand associated with the COVID-19 pandemic. In addition,
growth with existing customers driven by increased marketing
investments and the soft first quarter of 2019 due to the unusually
high demand in the fourth quarter of 2018 contributed to the
increase.
The increase in Adjusted EBITDA was due to the increase in net
revenues and lower material and manufacturing costs.
Hefty Tableware
- Net revenues increased $14 million, or 9%
- Adjusted EBITDA remained flat
The increase in net revenues was largely due to increased
consumer demand associated with the COVID-19 pandemic, partially
offset by increased trade promotion spend.
Adjusted EBITDA remained flat as the favorable impact of the
increased volume was offset by unfavorable product mix and
increased trade promotion spend.
Presto Products
- Net revenues remained flat
- Adjusted EBITDA increased $3 million, or 15%
Net revenues remained flat as the increased consumer demand
associated with the COVID-19 pandemic was offset by the impact of
the exit of certain low margin store branded business during
2019.
The increase in Adjusted EBITDA was primarily due to lower
material and manufacturing costs.
Impact of CARES Act
On March 27, 2020, the CARES Act was enacted in response to the
COVID-19 pandemic. The CARES Act has various tax law changes,
including increasing the limitation under IRC Section 163(j) for
2019 and 2020 to permit additional expensing of interest. As a
result of the CARES Act, the Company expects that the deferred tax
asset for the IRC Section 163(j) carryforward allocable to Reynolds
from the RGHL Group upon its IPO will be less. As such, the Company
has recorded a discrete income tax expense of $23 million
attributable to the write-down of such deferred tax asset in
connection with the tax law change, which has been excluded from
the calculations of Adjusted Net Income and Adjusted Earnings Per
Share.
Public Company Transition
The Company’s transition to becoming a stand-alone public
company is progressing as planned. Most notably, the Company’s
planned SAP ERP separation from its pre-IPO parent company was
shifted to a remote implementation and seamlessly completed as
scheduled subsequent to quarter end. Extensive planning for the SAP
project and the associated inventory build aided in Reynolds’
ability to continue to supply its customers during the period of
unprecedented demand.
Balance Sheet and Cash Flow Highlights
The Company’s cash and cash equivalents balance was $200 million
as of March 31, 2020 and total outstanding debt was $2,448 million.
Capital expenditures totaled $23 million for the quarter ended
March 31, 2020 compared to $15 million for the prior year
period.
Fiscal Year 2020 Outlook
Mitchell continued “Circumstances surrounding the
unpredictability of COVID-19 continue to evolve, making it more
difficult to predict the future with certainty. Increased consumer
demand driven by changes in buying habits and incremental usage
occasions has continued, but is dynamic and not yet normalized, and
the current operating environment necessitates additional costs. We
believe we are successfully managing and operating the Company
during these challenging times and that we are positioned to grow
stronger. We will continue to focus on what we can directly
influence - keeping our employees safe and managing the business to
ensure continued long term earnings growth for our
shareholders.”
As a result of increased demand related to the COVID-19 pandemic
and the anticipated benefit from lower interest rates, the Company
has increased its guidance on all profit measures and reduced its
Net Debt target. The Company has assumed the increased demand
associated with COVID-19 will continue in the near-term, however,
it expects COVID-19 operational-related cost increases to offset
the impact of the increased demand resulting in its Adjusted EBITDA
forecast for Q2 – Q4 2020 remaining in line with its previous
guidance.
The Company acknowledges that the magnitude and duration of
increased demand remains uncertain and that the greatest challenge
it faces as a result of the pandemic is its ability to maintain the
level of supply needed to keep up with the increased demand. The
Company is taking steps to add capacity to address the increased
demand through both staffing and capital investments. The outlook
assumes that the Company can meet demand and that there are no
significant disruptions to its operations, supply chain or retail
partners for the remainder of fiscal 2020. The Company expects that
the COVID-19 related volume increases in 2020 will make it more
challenging to show year over year improvement in Adjusted EBITDA
in 2021.
For the fiscal year ending December 31, 2020, the Company is
providing the following updated guidance:
- Net Income to be in the range of $335 million to $355
million
- Earnings Per Share to be in the range of $1.60 to $1.69
per share
- Adjusted EBITDA to be in the range of $695 million to
$715 million1
- Adjusted Net Income to be in the range of $388 million
to $403 million1
- Adjusted Earnings Per Share to be in the range of $1.85
to $1.92 per share1
- Net Debt to be in the range of $1.9 billion to $2.1
billion1
Conference Call and Webcast Presentation
The Company will host a conference call and webcast presentation
along with the executive management team to discuss these results
with additional comments and details today at 8:30 a.m. ET (7:30
a.m. CT). The live conference call webcast and supplemental
presentation will be available live over the Internet through the
Investors section of the Company’s website at
www.reynoldsconsumerproducts.com. To participate on the live call,
dial (855) 982-6675 and enter the passcode 4361736. A telephone
replay will be available approximately two hours after the call
concludes through Thursday, May 21, 2020, by dialing (855)
859-2056, and entering passcode 4361736.
About Reynolds Consumer Products Inc.
RCP’s mission is to simplify daily life so consumers can enjoy
what matters most. RCP is a market-leading consumer products
company with a presence in 95% of households across the United
States. RCP produces and sells products across three broad
categories: cooking products, waste & storage products and
tableware that are sold under iconic brands such as Reynolds and
Hefty, as well as under store brands that are strategically
important to RCP’s customers. Overall, across both branded and
store brand offerings, RCP holds the #1 or #2 U.S. market share
position in the majority of product categories in which it
participates.
Note to Investors Regarding Forward Looking
Statements
This press release contains statements reflecting our views
about our future performance that constitute “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, including our fiscal year 2020 guidance. In
some cases, you can identify these statements by forward-looking
words such as “may,” “might,” “will,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential” or
“continue,” the negative of these terms and other comparable
terminology. These forward-looking statements, which are subject to
risks, uncertainties and assumptions about us, may include
projections of our future financial performance, our anticipated
growth strategies and anticipated trends in our business. These
statements are only predictions based on our current expectations
and projections about future events. There are important factors
that could cause our actual results, level of activity, performance
or achievements to differ materially from the results, level of
activity, performance or achievements expressed or implied by the
forward-looking statements, including but not limited to the risk
factors set forth in our most recent Annual Report on Form
10-K.
For additional information on these and other factors that could
cause our actual results to materially differ from those set forth
herein, please see our filings with the Securities and Exchange
Commission, including our most recent annual report on Form 10-K.
Investors are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the date they
are made. The Company undertakes no obligation to update any
forward-looking statement, whether as a result of new information,
future events or otherwise.
REYN-F
Reynolds Consumer Products
Inc.
Condensed Consolidated
Statements of Income
(in millions, except for per
share data)
(Unaudited)
For the Three Months
Ended
March 31,
2020
2019
Net revenues
$
691
$
625
Related party net revenues
39
40
Total net revenues
730
665
Cost of sales
(541
)
(492
)
Gross profit
189
173
Selling, general and administrative
expenses
(82
)
(78
)
Other expense, net
(15
)
(5
)
Income from operations
92
90
Interest expense, net
(27
)
(68
)
Income before income taxes
65
22
Income tax expense
(39
)
(5
)
Net income
$
26
$
17
Earnings per share:
Basic
$
0.14
$
0.11
Diluted
$
0.14
$
0.11
Weighted average shares outstanding:
Basic
188.8
155.5
Effect of dilutive securities
0.2
—
Diluted
189.0
155.5
Reynolds Consumer Products
Inc.
Condensed Consolidated Balance
Sheets
(in millions, except for per
share data)
(Unaudited)
As of March 31,
2020
As of December 31,
2019
Assets
Cash and cash equivalents
$
200
$
102
Accounts receivable (net of allowance for
doubtful accounts of $1 and $0)
316
13
Other receivables
8
7
Related party receivables
4
14
Inventories
433
418
Other current assets
12
16
Total current assets
973
570
Property, plant and equipment (net of
accumulated depreciation of $657 and $642)
543
537
Operating lease right-of-use assets,
net
62
42
Goodwill
1,879
1,879
Intangible assets, net
1,115
1,123
Other assets
15
9
Total assets
$
4,587
$
4,160
Liabilities
Accounts payable
$
144
$
135
Related party payables
48
72
Related party accrued interest payable
—
18
Current portion of long-term debt
25
21
Income taxes payable
10
—
Dividends payable
31
—
Accrued and other current liabilities
127
132
Total current liabilities
385
378
Long-term debt
2,423
1,990
Long-term related party borrowings
—
2,214
Long-term operating lease liabilities
54
35
Deferred income taxes
288
294
Long-term postretirement benefit
obligation
49
48
Other liabilities
18
19
Total liabilities
$
3,217
$
4,978
Stockholders’ equity
Common stock, $0.001 par value; 2,000
shares authorized; 209.7 shares issued and outstanding
—
—
Additional paid-in capital
1,378
—
Net parent deficit
—
(823
)
Accumulated other comprehensive income
3
5
Retained earnings
(11
)
—
Total stockholders' equity
1,370
(818
)
Total liabilities and stockholders'
equity
$
4,587
$
4,160
Reynolds Consumer Products
Inc.
Condensed Consolidated
Statements of Cash Flows
(in millions)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Cash provided by (used in) operating
activities
Net income
$
26
$
17
Adjustments to reconcile net income to
operating cash flows:
Depreciation and amortization
24
21
Deferred income taxes
28
(1
)
Unrealized (gains) losses on
derivatives
4
(7
)
Stock compensation expense
1
—
Change in assets and liabilities:
Accounts receivable, net
(303
)
3
Other receivables
(1
)
8
Related party receivables
9
(88
)
Inventories
(16
)
(59
)
Accounts payable
10
(11
)
Related party payables
(20
)
(18
)
Related party accrued interest payable
(18
)
53
Income taxes payable
11
6
Accrued and other current liabilities
(7
)
(20
)
Other assets and liabilities
(3
)
—
Net cash used in operating
activities
(255
)
(96
)
Cash (used in) provided by investing
activities
Acquisition of property, plant and
equipment
(23
)
(15
)
Advances to related parties
—
(50
)
Repayments from related parties
—
137
Net cash (used in) provided by
investing activities
(23
)
72
Cash provided by (used in) financing
activities
Proceeds from long-term debt, net of
discounts
2,472
—
Repayments of RGHL Group Credit
Agreement
(8
)
(4
)
Advances from related parties
240
12
Repayments to related parties
(3,627
)
(6
)
Deferred debt transaction costs
(28
)
—
Proceeds from IPO settlement facility
1,168
—
Repayment of IPO settlement facility
(1,168
)
—
Issuance of common stock
1,410
—
Equity issuance costs
(69
)
—
Net transfers from (to) Parent
(14
)
4
Net cash provided by financing
activities
376
6
Effect of exchange rate on cash flows and
cash equivalents
—
—
Net increase (decrease) in cash and cash
equivalents
98
(18
)
Cash and cash equivalents at beginning of
period
102
23
Cash and cash equivalents at end of
period
$
200
$
5
Reynolds Consumer Products
Inc.
Segment Results
($ in millions)
Reynolds
Cooking
& Baking
Hefty
Waste &
Storage
Hefty
Tableware
Presto
Products
Unallocated
Total
Revenues
Three months ended March 31, 2020
$
243
$
192
$
178
$
127
$
(10
)
$
730
Three months ended March 31, 2019
213
165
164
127
(4
)
665
Adjusted EBITDA
Three months ended March 31, 2020
40
55
35
23
(18
)
135
Three months ended March 31, 2019
18
39
35
20
(2
)
110
Use of Non-GAAP Financial Measures
We use non-GAAP financial measures “Adjusted EBITDA,” “Adjusted
Net Income,” “Adjusted Earnings Per Share”, and “Net Debt” in
evaluating our past results and future prospects. We define
Adjusted EBITDA as net income calculated in accordance with GAAP,
plus the sum of income tax expense, net interest expense,
depreciation and amortization and further adjusted to exclude
unrealized gains and losses on derivatives, factoring discounts
(pre-IPO), the allocated related party management fee (pre-IPO) and
IPO transaction-related costs. We define Adjusted Net Income and
Adjusted Earnings Per Share as Net Income and Earnings Per Share
calculated in accordance with GAAP, plus the sum of IPO
transaction-related costs, the impact of tax legislation changes
under the CARES Act enacted March 27, 2020 and any unrealized gains
or losses on derivatives. We define Net Debt as the current portion
of long term debt plus long term debt less cash and cash
equivalents.
We present Adjusted EBITDA because it is a key measure used by
our management team to evaluate our operating performance, generate
future operating plans and make strategic decisions. In addition,
our chief operating decision maker uses Adjusted EBITDA of each
reportable segment to evaluate the operating performance of such
segments. We use Adjusted Net Income and Adjusted Earnings Per
Share as supplemental metrics to evaluate our business’ performance
in a way that also considers our ability to generate profit without
the impact of certain items. We use Net Debt as we believe it is a
more representative measure of our liquidity. Accordingly, we
believe presenting these metrics provides useful information to
investors and others in understanding and evaluating our operating
results in the same manner as our management team and board of
directors.
Non-GAAP information should be considered as supplemental in
nature and is not meant to be considered in isolation or as a
substitute for the related financial information prepared in
accordance with GAAP. In addition, our non-GAAP financial measures
may not be the same as or comparable to similar non-GAAP financial
measures presented by other companies.
Guidance for fiscal year 2020, where adjusted, is provided on a
non-GAAP basis, which the Company will continue to identify as it
reports its future financial results. The Company cannot reconcile
its expected Adjusted EBITDA to expected Net Income under “Fiscal
Year 2020 Outlook” without unreasonable effort because certain
items that impact net income and other reconciling metrics are out
of the Company's control and/or cannot be reasonably predicted at
this time, which unavailable information could have a significant
impact on the Company’s GAAP financial results. In addition, the
Company cannot reconcile its expected Net Debt to expected total
debt without reasonable effort because certain items that impact
total debt and other reconciling metrics are out of the Company’s
control and/or cannot be reasonable predicted at this time, which
unavailable information could have a significant impact on the
Company’s GAAP financial results.
Please see reconciliations of Non-GAAP measures used in this
release (with the exception of our 2020 Adjusted EBITDA outlook and
Net Debt, as described above) to the most directly comparable GAAP
measures, beginning on the following page.
Reynolds Consumer Products
Inc.
Reconciliation of Net Income
to Adjusted EBITDA
(amounts in millions)
Three months ended
March 31,
2020
2019
Net income – GAAP
$
26
$
17
Income tax expense
39
5
Interest expense, net
27
68
Depreciation and amortization
24
21
Factoring discount
-
5
Allocated related party management fee
-
2
IPO transaction-related costs
14
-
Unrealized losses (gains) on derivatives
4
(7
)
Other
1
(1
)
Adjusted EBITDA (Non-GAAP)
$
135
$
110
Reynolds Consumer Products
Inc.
Reconciliation of Net Income
and EPS to Adjusted Net Income and Adjusted EPS
(amounts in millions except per
share data)
Three Months Ended March 31,
2020
Net Income
Diluted Shares
Diluted EPS
As Reported - GAAP
26
189
$
0.14
Assume full period impact of IPO shares (1)
-
21
$
-
26
210
0.12
Adjustments: Impact of tax legislation change from CARES Act
23
210
0.11
IPO transaction-related costs (2)
11
210
0.05
Unrealized loss on derivatives (2)
3
210
0.02
Adjusted (Non-GAAP)
$
63
210
$
0.30
Reynolds Consumer Products Inc. Reconciliation of
2020 Net Income and EPS guidance to Adjusted Net Income and
Adjusted EPS guidance (amounts in millions except per share
data)
Net Income
Diluted shares
outstanding (3)
Diluted Earnings Per
Share
low
high
low
high
Fiscal Year 2020 - Guidance
$
335
$
355
210
$
1.60
$
1.69
Adjustments: IPO transaction-related costs (2)
$
30
$
25
210
$
0.14
$
0.12
Impact of tax legislation change from CARES Act
$
23
$
23
210
$
0.11
$
0.11
Fiscal Year 2020 - Adjusted Guidance
$
388
$
403
210
$
1.85
$
1.92
(1)
Represents incremental shares required to adjust the weighted
average shares outstanding for the period to the actual shares
outstanding as of March 31, 2020. The Company utilizes the shares
outstanding at period end as if they had been outstanding for the
full period rather than weighted average shares outstanding over
the course of the period as it is a more meaningful calculation
that provides consistency in comparability.
(2)
Amounts are after tax calculated using a tax rate of 25%, which is
the Company's effective tax rate excluding the one-time discrete
expense associated with the legislation change from the CARES Act.
(3)
The Company has assumed the actual shares outstanding at March 31,
2020 to be outstanding for the full period rather than the weighted
average shares outstanding over the course of the period as it is a
more meaningful calculation that provides consistency in
comparability.
1 Adjusted Net Income, Adjusted Earnings Per Share, Adjusted
EBITDA and Net Debt are non-GAAP measures. Refer to the discussion
on non-GAAP financial measures and reconciliations included in this
release. In addition, as further described in Note 1 to the
non-GAAP reconciliation included within this release, the share
count utilized for Adjusted Earnings Per Share has been adjusted to
reflect the additional shares issued as a result of the IPO as
though they were outstanding for the entire period.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200507005297/en/
Investors Mark Swartzberg
Mark.Swartzberg@reynoldsbrands.com (847) 482-4081
Media Kate Ottavio Kent Kate.OttavioKent@icrinc.com (203)
682-8276
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