Q2 2020 Reynolds Consumer Products Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the rentals consumer products second quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
Did the speaker presentation, there will be a question answer session.
If anyone should require operator assistance. Please press star zero on your telephone keypad.
Please be advised that today's call is being recorded.
I would now like to help with the conference over to your Speaker today Mark Swartzberg. Thank you. Please go ahead.
Thank you good morning, and thank you for joining us on rentals consumer products second quarter 2020 earnings conference call.
On the call today, our lands Mitchell, President and Chief Executive Officer, Michael Graham Chief Financial Officer, Nathan Low Senior Finance director and Chris Mayor offer Vice President corporate controller and principal accounting officer will also be available for acute went out.
During the course of this call management may make forward looking statements within the meeting at the Federal Securities Laws. These statements are based on management's current expectations and involve risks and uncertainties that could cause actual results an outcome differ materially from those describing these forward looking statements. Please refer to the rentals consumer products salary report on form 10-K.
Other reports filed from time to time with the Securities and Exchange Commission and its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Please note management's remarks today will focus on non-GAAP or adjusted financial measures reconciliation of GAAP results non-GAAP financial measures its available in the earnings release posted under the Investor Relations heading on our website I'd rentals consumer products Dot com.
The company has also prepared a few presentation slides and additional supplemental financial information, which are posted on rentals website under the <unk> customer relations heading this call is being webcast and an archived are they will also be available on the website.
I'd also like to note that we are conducting our call today from our respective remote locations as such there may be brief delays cross talk or other minor technical issues. During this call. We thank you in a batch for your patience and understanding.
Well, we would like to answer all of your questions. During the question and answer session. The interest of time. We ask you asked one question and a follow up I rejoin the queue. If you have additional questions and now I'd like turn the call over till last special.
Thanks, Mark good morning, everyone.
Today, I would like to start by recognizing a banking central frontline workers, especially the work of health care professionals carrying first 10 for those who are sick.
Employees at our retail partners have also stepped up to continue to supply people with a central products on an ongoing basis.
We're pleased to be able to support that.
I'm incredibly proud of how the entire team at rentals has come together as we emerged from this quarter a stronger.
And more agile company.
The pandemic continues to present immense challenges for people everywhere.
And there are five areas, where I believe we werent grew and demonstrated new and better capabilities in the quarter.
I will review each of them, including the challenges, we face and high level comments on our second quarter financial results, then speak to our second half priorities and how we are pivoting.
Managing the crisis to leading and working our plans to become a stronger company and partner.
Thanks.
Our safety first culture has served US well that's the endemic developed in March and what is fully underway throughout the second quarter.
We implemented unprecedented safety protocols ahead of C.D.C. guidance with urgency.
These include it safe distancing barriers shifts separation.
Mandatory mask usage.
Aperture testing Handwashing an increase cleaning.
It's one thing to develop policies and procedures, it's yet another to ensure that they are implemented on a day in and day out basis.
Our safety culture has ensured we successfully continue to follow all the guidelines we established.
Oh, the covered 19 pandemic.
Supply chain.
We move rapidly to expand capacity for products that continued to be in higher than planned demand.
And we were creative then unlocking capacity.
We worked with our retail partners to pause low volume skews in favor of priority items.
Shifted innovation emphasis from on the go to stay at home products.
Centralize the portion of inventory management to prove replenishment and accuracy.
Resubmission mothballed capacity in our cooking and baking segment.
Celebrated line additions added plant staff and undertook other measures to deliver against the increase into bad.
As a result, our capacity continues to increase contributing to retailer in stock rates well above levels early in the quarter and many of our categories.
However.
We are not operating at full utilization rates, reflecting challenges fully staffing existing and new capacity and contributing to out of stocks and certain product categories.
Staffing challenges reflect multiple factors, including absences and local hot spots.
Employees childcare need in hiring conditions in certain local economies.
We're making progress here, but we have more to do.
Overcoming this is a top priority of our leadership team.
Category management.
We strengthened a competitive advantage by spending more on proprietary research developing new consumer insights and implementing new analytical tools to support our retailer partners and future product development.
For example.
We conducted three successive waves a research to identify progressive changes in shopping behavior since the start of the pandemic, allowing us to see new normals of growth and share like product segment.
We undertook a state by state analysis of restaurant and dining out trends in relation to reopening orders.
Governing patterns that are helping us predict localize trends.
Our table where business.
We adopted a new analytical tool to predict growth.
Of our most important product categories factoring the latest trends into predictions and continually back testing for accuracy.
And in terms of E commerce.
We conducted research identifying that an average of 26% of U.S. shoppers now look to E commerce to fulfill their purchase needs and our categories.
All of this tells US we're seeing a sustained shifting behavior the benefits our categories and our ability to serve our retail partners.
In terms of consumer behavior.
Our July Harris poll finds that heighten nothing.
Continues and that a significant majority of consumers expect to continue the increase in cooking baking.
Cleaning and organizing in which they are engaged today.
Consequently, we're planning on operating on the expectation that these shifts benefit the majority of our categories not only in 2020, but over the long term too.
Leadership was our fourth your growth, we developed tools policies and training.
That allow us to lead and manage remotely.
We've also increased communications to promote alignment increased investment in cyber security training for a distributed workforce and adapted in order to remain on track with our plans to exit transition service agreements.
Our financial results.
We reported strong revenue performance in the second quarter in spite of last year's exit a certain low margin store brand business lapping a price points investments and rental drop oil.
Lower related party revenues and decreased demand for arcade word business.
Our E Commerce retail sales were also strong in the quarter as we continue to capture elevated participation in the ecommerce platforms.
And adjusted EBITDA grew double digits, driven by our topline and gross margin expansion of 200 basis points.
Merrily from lower material and manufacturing costs in spite of incremental cobot 19 related operating costs.
When we formed rentals consumer products in 2011.
We had the opportunity to create a new company build on well known brands from solid legacy companies.
We use that opportunity to create a culture of the prioritizes safety families ethics and achievement of our financial and strategic goals.
Nine years later, we entered the IPO process a successful company.
Partner and competitor benefiting from the requirements of going public.
Today, our leadership team leads an even stronger and more agile company and I could not be more proud of our team and employees for their resilience and success responding to the challenges and opportunities presented by the cobot 19 pandemic.
As we moved to the second half our priorities are one.
Additional spending and work better understand changing consumer preferences behaviors and shopping patterns to.
Advertising levels to support momentum into next year.
And readying of innovations with continued focus on at least 20% of that revenues from products launched in the last three years three.
Buildout staffing and rightsizing of capacity.
For additional automation of production and processes and five delivery.
Other standing new Revolution business transformation initiatives.
I would like to conclude by reiterating that we continue to make safety our top priority striving for zero accidents.
Happy to tell you that we have experienced a record low number of incidents your today.
Even with the challenges of a pandemic and projects to increase our capacity.
That's a continuation of our safety culture journey over the last seven years, we've reduced our injury rate by 30%.
I will now turn it over to Michael to discuss our results for the quarter and our outlook.
Thanks, Lance and good morning, everyone.
I'd like to Echo lanthanum comments in thinking our employees, whose dedication has been crucial to navigate and our company through the implications of this pandemic now I'm extremely proud to be part of the Reynolds team.
With that said I now we'll spend a few minutes reviewing the financial results for the quarter.
Total net revenues in the second quarter, 2020, 822 million compared to 791 billion in the prior year.
The increase was primarily driven by stronger volume stemming from the consumer response to the pandemic.
We saw increased demand across our Reynolds can.
Cooking in baking hefty waste and storage and personal products segments.
Whereas our hefty tableware segment was negatively impacted by the pandemic.
We'll go into details of the segments shortly.
Net income for the second quarter was 112 million compared to 55 million in the second quarter of last year and adjusted net income was 115 man for the second quarter 2020.
The increase was primarily driven by the aforementioned stronger volume as well as lower interest expense.
Shifting to capital structure that went into effect with the IPO.
Adjusted EPS for the quarter was 55 cents.
Adjusted EBITDA for the second quarter was 193 million compared to 169 billion in the prior year.
The increase was primarily due to the previously noted volume increases.
Now, we'll discuss the results of each of our segments.
Rentals cooking and baking net revenues in the second quarter 295 million compared to 275 million the same period of last year.
The increase was primarily driven by increased demand due to consumer response to the cobot 19 pandemic.
The increase was partially offset by lower related party sales and lower pricing from actions largely taken in the prior year as we support our customers and achieving key price points and as a result of lower material costs.
Adjusted EBITDA quarter was 66 million compared to prior year 49 million at the impact of higher revenue, along with lower material and manufacturing cost, which partially offset by the impact of lower pricing.
Perhaps the waste and storage <unk> revenues in the second quarter were 203 million compared to 183 million in the prior year.
The increase was primarily driven by the increased demand due to the consumer response to the cobot 19 pandemic.
Adjusted EBITDA in the quarter was 63 million compared to 52 million in the prior year, primarily driven by the increased revenue.
Now moving onto the hefty tableware.
Net revenues for the segment were 186 million compared to a 270 million in the prior year.
Segment was negatively impacted during the quarter because of your social gatherings, particularly around into school year in summer. That's additionally, lower demand from food service businesses service by our retail partners contributed to the decline.
Adjusted EBIT in the quarter was 43 million compared to 51 million in the prior year, primarily due to decreased revenue as well as increased material manufacturing costs, resulting from our transition to a stand alone entity.
Finally depressed a product segment net revenues were 138 million compared to 131 million in the prior year.
The increase was primarily driven by increased demand due to consumer response to the koby 19 pandemic, partially offset by exit of certain low margin store branded businesses in the prior year.
Adjusted EBIT in the second quarter was 20 28 million compared to 24 million in the prior year, primarily driven by the increased revenue.
Now moving to our capital structure.
As of June Thirtyth 2020.
We had cash cash balance of 392 million a total debt outstanding 2.44 billion.
Adjusted net cash from operations was 263 million for the quarter compared to adjusted net cash from operations of 165 man in the prior year.
Capex was 20, my 29 million for the quarter compared to 26 million in the prior year.
I'm pleased to announce that our board has approved the quarterly dividend of 22 cents per common share, which is expected to be paid on August 31st to shareholders of record adds up August 17.
Additionally, subsequent to the quarter again, we made a voluntary hundred million.
Dollar principal payment against the balance on our senior secured term loan facility.
I would now like to comment on our guidance for the fiscal year ending December 31st 2020.
The following guidance is what we previously provided for fiscal 2020.
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 for share adjusted EBITDA to be in the range of 695 million to 715 million adjusted net income to be in the range of 388 million to 403 million.
Adjusted earnings per share to be in a range of $1.85 to $1.92 per share.
Net debt to be in the range of 1.9 billion to 2.1 billion.
We expect higher than previously planned demand for many of our products to continue over the balance of the year and as a result, now expect 2020 results to be at the upper end of the previously provided ranges for net income earnings per share adjusted EBITDA adjusted net income and adjusted earnings per share.
We're also can confirming our previous guidance for net debt.
This is a positive outlook on our guidance, we communicated in may and provided in the context about business facing a high degree of uncertainty going for it also reflects a number of headwinds limiting our expectations for the third quarter.
Certainly the fourth quarter.
We're on track for completing our capacity objectives by early 2021, however, though the additions of capacity in this environment involve added cost and the staffing challenges on existing lines are compounded as we add capacity, reflecting the factors Lance noted earlier.
Our research and trends indicate fewer than smaller social gathering.
And offset to higher rates of everyday consumption for many of our products, leading us to expect less from holiday related sales.
Also wallet table, where business is expected to see moderation of Q twos headwinds as foodservice in dining out trends improved from the pin that endemic lows. We expect continued pressure on this business over the balance of the year.
We've also seen increases and all of our key commodities in recent months and the outlook is worse than our expectations. When we reported Q1 earnings in May.
We have seen cobot related costs rise in the quarter discrete cost for cleaning safety related items were in the range of five to 10 million. In addition, we're experiencing or operational supply chain efficiencies of rising from the operating at a high demand environment.
Delays in certain cost savings programs and other factors.
Logistics units costs have increased as a result of higher fuel costs and lower distribution in efficiencies.
We expect SNA increased to be elevated reflecting an P increases that are skewed heavily to the second half driven by our plans to build additional portfolio momentum as well as pandemic related delays in and peaks originally scheduled for the first half thus the amounts plan for Q4 wall about fourth.
Quarter levels of 2019.
Finally, as important to know that we assume no significant disruption to our operations supply chain or retail partners for the remainder of 2020.
On the topic of a secondary as many of you know the hundred 80 day lock off on the sales of shares by directors Executive officers and packaging Finance limited recently expired our largest shareholder is not did buy stuff any intended change in its position it very pleased with the pro forma.
And outlook for the company.
As we look ahead, we continue to believe that our business model is well positioned to drive attractive returns in the long term our expectations focus areas continue to be average annual volume growth in low single digits continued investment to support margin expansion.
Average annual adjusted EBITDA growth of low to mid single digits average annual net income broke in the mid single digits dividend payout ratio of approximately 50% of net income.
That will turn it back over to Mark. Thank you.
Thanks, Michael as I turn it over to the operator for the questions I'd like to remind you that we ask that you ask one question and if you have in a follow up and then rejoin the queue. If you have additional questions.
Operator.
Thank you we will now be conducting a question and answer session again, we yes. It all callers limit themselves to one question and one follow up if you have additional questions. You may recall you in those questions will be addressed time permitting.
If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation told will indicate your larger than the question Q.
You May press star to if he would like to remove your question from the Q.
Participants easing speaker equipment, it may be necessary to pick up your hands. So people are persons darkie.
One moment, please while we pull for questions.
Thank you. Our first question comes from the line of Bill Chappell with Truest. Please proceed with your question.
Hi, Thanks, good morning.
Oh, I guess morning, Bill just on it but.
Certainly your portfolio is well positioned with your your store brand private label portfolio, just trying to understand if you're starting to see consumer trade down or if you're kind of expectations for the remainder of year kind of consumer trade down and and kind of related impact to margins.
If a bill this is lance looks like if you mean by trade down a few shifting from brand to store brands. We have readying just the off but continuing you can see that in a scanner data you've been through July the shares across our our categories of remain strong for the branded businesses.
And in fact, there, but continue to out to grow in some cases.
Got it and.
Do you expect that to continue as we kind of move toward the rest the year and in a recession.
Well as we've talked about previously you know this company has not gone through a recession as rentals consumer products, but the legacy companies have.
And the historical.
Oh look back indicates that there was no meaningful difference in shares a changing during the last recession for the majority of the products.
Got it and then one follow up just on the capacity additions.
He is there is there a need for these additions are you expecting demand to continue well past coded and into 2021 or is this just.
Things are being pulled forward that you were planning to do it down the road anyways.
It is a combination of both we did pull forward some.
Plant capacity additions, but we've also increased our capacity because our outlook for.
Consumer demand based on the research I talked about my opening remarks.
Indicates that this is a no eight more permanent type of demand pattern from consumers for our categories.
We're adding additional capacity for the long term.
Got it thanks, so much.
Thank you.
Our next question comes from the line of Rob Ottenstein with Evercore. Please proceed with your question.
Great. Thank you very much.
So I'm wondering how how the dialogue weve retailers has progressed you know given your important role as a category Captain you know through let's say you know marched through June and given you know what you're saying that you think eight there's a more permanent demand pattern here is that something that retailers.
Yes, I agree with and are they going to therefore give more shelf space and then related to that how how is the whole discussion going we've retailers in terms of E Commerce and and how do you see the development of E Commerce.
Hi, as as a as the crisis continues thank you.
Okay, I guess, there's two questions there the first one regarding our relationship with retail partners.
I think our our relationship is emerged from the pandemic a in the last quarter stronger than it was before.
We've been very transparent with them about our capabilities our capacity additions and we've talked about our.
Skews that we're going to pause and come to a collaborative agreement on that.
So are there are an agreement that.
The categories are going to grow.
The man permanently.
Stronger than we had.
Originally anticipated before the pandemic because consumer behaviors are today.
Regarding shelf space you know that's for sure. We haven't had those discussions we are discussing new product introductions.
But regarding the well shelf space, that's that's not something that's been on the agenda as of yet.
The second question.
Remind me again. Please just just you had mentioned that I think 26% based on your research, 26% or the population was looking towards E commerce as as a channel for your products. So I'm trying to understand what that means in terms of how you're going to adapt.
To that and what that means in terms you discussions with with your brick and mortar retailers.
Well I'd say first of all our brick and mortar retailers. We included ecommerce so curbside pickup and the programs that you know the brick and mortar retailers are participating in its concluded again the way that we look at E. Commerce, it's not just home delivery, but all aspects of E Commerce and.
We are very pleased with our results and E commerce through.
The the second quarter and the and the as we look forward because in those categories. We are growing in.
In fact growing.
From a share standpoint, most of our products faster that we've grown traditional brick and mortar channels.
Are you able to give us a sense of what percentage of your sales were E commerce and in a sense of what your share in E commerce looks like.
Yeah, I can't I can't fear that number at this point, partially because the data is still murky. Some retailers are very very detailed numbers, some or not so we get directional data there, but we're not getting.
Clean data that is going to improve over time as more and more retailers provides specific information.
Right.
Thank you very much.
Our next question comes the line of Jason English with Goldman Sachs. Please proceed with your question.
Hey, good morning folks.
Glad to hear you all are doing well.
Hi, Jason Security what Ken.
Yeah. Thanks, Lance you do I was little surprised by the revenue you posted this quarter. It in light of the data. We're all looking at in Nielsen or IRI I think many was expected to see a more robust vigor.
It can you walk us through what the disconnect is as we look at these numbers why the gap, but what are some of the offsets.
Yeah, that's not washer reports story, our quiet period, I really want to reach out and talk about this and so did March up we attribute this bailey the decline and related party revenue and it's great that street focused on scanner data at the macro category level.
It also mistake that none of our branded and private label performance. So let me try and break it down for the quarter <unk>.
Our related party net revenues were down $14 million for the quarter as it related parties this primarily into foodservice and restaurants.
No foodservice foil and bakeware aluminum pants.
Our reported net revenues excluding related net revenue related party not revenues were up 6% for the quarter, that's still well below the rates I know many of you cited from the scanner data and I said, it's important to go deep into the category and accurately net.
Our branded and private label performance to see how we perform to scan channels. For example, tableware our hefty cups performance was more than offset by our private label performance.
Whereas our private label performance and the phone plate segment outgrew the the branded.
In table, where it's also important to note that papers a significant part of disposable dishes segment, we're introducing new products in that area, but we don't yet participate in that segment in a meaningful way from a paper standpoint.
In addition, some of our revenue from let's say where business is sold in certain channels.
Foodservice applications.
So a combination all those events you know you can't look at our business just on the scanner data across and apply that across our entire company.
That's really helpful and all these Oh, sorry go ahead, and Jason all that all add to that Jason. This is mark speaking nothing substantive 'cause plants covered the substantive points, but we get that you're you're you're tracking the data and trying to get it at the most granular level you can so I'm definitely look for nascent an item.
If you just follow it because I just as lap the number was the underlying number was a plus six and you obviously want to be able to see that try to get closer to that as you go through given.
Set a month central corridor.
Oh, absolutely you're still new company and we're all trying to learn here. So we'll lean on your going forward a little more heavily second question, Michael <unk> <unk> and the tail end of your prepared remarks, you ran through a lot of headwinds.
In the fourth quarter.
<unk> from logistics costs from commodities moving to incremental cobot cost to heavy up on SGN a AD spend in the fourth quarter can can you can you give us any sort of quantum of of investment anyway to contextualize the level of expenses and headwinds that you're talking about there.
Sure I I would attribute a big a large part of that Ed headwinds than I did comment on that is related to our A.N.P. spending.
So a couple of things contributed to aid in P. spending some of that was related to the cold. It but also large part of that is is that as we start to build momentum.
For the for our franchise you know we want to make sure. It's supported with appropriate levels are they in peace bidding. So a big chunk of that additional cost that you are seeing directly relates a and b spinning.
The other part of it is did I was saying from overall standpoint is that we do have a larger larger increases in commodity costs are rising the second quarter, we see that both on the aluminum side as well as the as well as of the resin sorry.
I'd also say out of a volume standpoint basin. We are we are expecting you know the the holidays to be different this year.
<unk>.
That is traditionally our largest corridor.
From a seasonality standpoint is Thanksgiving into December holidays.
And we don't expect those to drive the same kind of volume as they have in the past partially because consumers are already have on hand, many of our products.
And partially because the gatherings you're going to be different.
Yeah, it'll be interesting to see how that plays out.
Thank you off your time ill pass it off.
Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.
Great. Thanks, good morning.
And good morning, I just wanted to do so why the follow up again I know one you just ran through.
Some details on on you know I guess, helping us to how we should be looked at Nielsen going forward and we'll pick that up further offline, but I I wanted to also just clarify on the comments on on in stock at versus out of stocks. So so right now would you say that I guess lets say as of July you know.
That.
Your shipments are now back in line with take away and that retail inventory levels are kind of where they need to be.
I'll, let me answer that in a couple of different ways first of all our in stock levels have improved from where they were in April so.
We saw the out of stocks increase until a flexion point at the end of April with a combination to ban easy and capacity increases that we've put in place capacity is coming closer to masking demand due to our rapid planning our creative solutions that I talked about my opening remarks, as well as adding staff.
Oh, Yes, we are we are seeing improvements, but we still have many of our products on allocation with our retail partners.
And we are we're continuing to add capacity and staffing although not at the rate as I indicated that we would like because our case fill levels or not at the 98.5% that we target for ourselves, but the in stock levels of returns then it varies by products.
Through the.
You know the low nineties.
It's not like you go into a retail partner and see the shelves wiped out in our categories like you may and others in our retail partners tell us we're doing better than a lot of other companies and keeping the in stocks, but it's not to the level that we hold ourselves too.
And we're continuing to work to improve that as I said in my opening remarks.
Okay. That's okay, one more how.
Well Yeah go ahead I'm.
Our plan for years.
Our.
You know essentially in a lot of our products that are in a high demand. We are shipping thing we're making.
And so what you're seeing in the scanner data is the shipments. So you know retailers are not sitting on inventory in fact, they depleted love their inventories.
Okay, because the reason I wanted to touch on the food I think back at some of the conversations we've had about pre covanta can remember that time.
Some of your market share gain for Hep C.
Okay and you know they were very strong performance on India. They said right that part of the story was that you were already capacity constrained and that was beginning to be alleviated, but now when we look at the Nielsen data and we continue to see shares under pressure and so just.
Thinking ahead to you know retailers you know needing to prioritized list with manufacturers that can deliver in stock levels.
Is there a worry that kinda. This continued market share pressure peak husband <unk> that the stock as she is kind of you know for system requires greater investing outside of Capex, but to kind of go back that marketshare I'm, you know that superior products that you got.
Yeah I across those categories that are in high demand, which includes waste bags, we have significant capacity increases underway.
And we expect to be able to be at the restored case for levels.
That I talked about by the end of year. So.
We Oh, we can go talk through the waste bag business directly I think our shares have held up very strongly during this period of time I attribute any.
Any change that primarily to some minor out of stocks that have you up a few retail partners, but those are those are rebounding.
This month and will continue.
Yeah, Hey, Laura <unk> I would like to just add to it Lance just saying I am confident that after a little more time.
The market's going up.
He just simply more accurate at reading, what we actually did in scan channels.
And in terms of absolute performance because you can see into scan channels that are share trends are good. So your your concern about in stock right, where I understand from the perspective, you're looking out into what you're looking at the data I hear your come in from but Atlanta, So the share performance.
Pick your channel are not pick your channel ticker. Your category. There are few exceptions, but the dominant trend is on a very healthy share performance. So I think it really just football down some really making sure you're getting proper granular level of what's happening in our business and that's not a unique to Barclays comments.
Right [laughter], Okay awesome. Thank you I'll follow up offline, thanks kinda like.
Yes.
As a reminder, if he would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Mark Ashford, Ken with Stifel. Please proceed with your question.
Yeah, Thanks, and good morning, everybody wanted to ask to kind of related question one just on.
The cost outlook. So I appreciate your commentary there about.
Levels in increasing by <unk>.
Okay, just oil for resin looked at aluminum, there's still below where they would have been at beginning of the year, presumably relating to.
Your initial outlook, so I guess, what what has changed maybe relative to that what are you.
What are you anticipating within your guidance for those metrics over the balance of the year in terms of commodity and then related to that you didnt have the same commentary in the press release me them over analyzing this around being more challenged to show year on year improvement in adjusted EBITDA in 2021, maybe if you could just touch on.
Two that'd be helpful.
And they think can you take the commodity question Michael you can take the 2021 question.
Yeah, I always think flats.
So I'll just pick on one of our.
Commodity so for as an example of how polyethylene process, which is tied to.
And well opt in June and slightly above where we started the here and certainly.
Western how expectations as we entered the year.
More recently, if I if I just as a reminder, hum materials or 60% about Cogs and about 45 in size points commodities.
In that probably a fine the largest followed by aluminum and then probably starting resin.
Oh three of those commodities that are just mentioned increased in June and now again in July which are contributing to questioning about commodity outlook and supplies frankly, it seems like a additional increases in the back half.
And then.
As far as 2021 is concerned you know look you know there's a lot of uncertainty we have still yet and we're still figuring out and you know we're not quite ready to talk about 2021, yet as far as it relates to our expectations around that but you know as year goes on and we get a little bit more visibility will be clear to you know give you a little bit.
More insight into that.
Okay. Thank you.
Our next question comes from the line of Andrea Teixeira with RJ commodities. Please proceed with your question.
Hi, Hi, actually taking Oregon, so thanks, and good morning, everyone. So I'm happy to hear your all well Oh. My question is on the consumer the echo some some dynamics and I. Appreciate the color you gave into earlier question. So it can you give us an idea that pantry stocking and you think consumers I assume.
Working inventory and also can you please comment on their excess weight for shipment growth in particular for cooking in table, where I think you you're talking about the on the level of shipments I guess, they tell me again, sorry, so it was hoping to see.
You can give us an I'd have to exit rate, particularly for those two are I mean, basically I try to I'm trying to figure out cooking has accelerated Y O tableware became less negative as it progressed the quarter we'd be opening.
And also a follow up.
The additional distribution for innovation have you already benefit some bad or the bulk of it has yet to comp for the balance I think here. Thanks.
Oh, Thanks, Andrea for the for the.
Our ours the RCP categories are experiencing elevated at home usage and they're continuing to grow I think the scanner data that you're seeing is.
Representative of take away as I mentioned, a moment ago theirs.
There's really no retailers replenishing inventory at this point because they're on allocation.
Most of our high demand products.
We are seeing tableware started to recover and those particularly in those states that have reopened more than others, but we're tracking that state by state back actually geography by geography within those states and overall, we are seeing stronger demand than those tableware items.
So from from an overall.
Demand standpoint, and shipments I think the scanner data, which reflects the shipment data as well and I really can't comment on Q3 getting further than that.
So could you remind me of the bought the other two questions that you asked.
Oh, yes, sorry, yes, yeah, and I appreciate that color, but I think more on the consumption habits. I know you try to run a lot of some.
A lot of kind of Nielsen or a surveyed you think that consumption of your products, meaning why aluminum foil and all the out the baking father, and obviously trash bags are you tracking a to meet demand based pretty quickly before people bought and clean out these jobs like are they.
Probably who are that inventory and then now what we see no Spanish trail consumption are there still you think there still pantry stocking at this point.
Our data shows that the pantry stocking has no longer occurring and that the destockings occur is already over and that occurred in the April may timeframe, but these are now use occasions.
The products track via the our survey well over half of our consumers are cleaning cooking baking doing yard work and organizing more often than they did three months ago.
An 80% of customer say their cookie more meals.
The majority over 64% say, they're generating more trashing using more disposable dishes.
To use the burden of cleaning and as well for example, our research indicates that used to just steady over the past few months and about one third of our consumers are using well at least once per day up from a pre cobot benchmark 6%.
So it is this is sticky behavior it.
That we expect do love to really continue for the long term.
That's super helpful. I think this is Mike what's happening.
A final reminder, if he would like to ask the question Press Star one on your telephone keypad.
Our next question comes from the line of Wendy Nicholson with Citigroup. Please proceed with your question.
Hi, good morning to just housekeeping things number one on the expense of $5 million to $10 million related to the co bid on expenses is that a permanent number that you expect will be with you going forward or is there that particularly larger he got those new protocols put in place.
That's question one question too Michael can you remind us this 16 million dollar headwind that you had on revenues from the exit of but low margin business last year, how many more quarters do we have that as a headwind when does that and then I hope it's okay. My real question.
Just with regard to capacity constraints.
Land like how you manage capacity constraint.
When you had a you have demand from your private label contracts and you have obviously demand for your branded goods.
Is there a choice that you have to make some times, how you prioritize we're going to meet the demands for the private label versus the brand or what's the decision.
Process like it if you've got to on demand on both sides that you can't meet I hope that makes sense. Thank you so much.
It makes great sense, Mike why don't you answered the first two questions that I'll take the last question sure. So our coke cobot cost the range I gave you five five or $10 million. You know these are discrete type of cost that around pp any you know extra labor and and cleaning costs and things that we've we experienced.
We've been experiencing thus far it's hard to peg on what that will be because obviously, depending upon what happens in overall you know.
Country as it relates in their coldly in we've seen some ramped up elevated cases, you know that has an impact on our location. So that that could vary I think the we give you that $5 million to $10 million is a reasonable range to assume going forward somewhere in there, but it's really hard to peg to specific number.
So as it relates to the.
The the lapping of the exit of low margin business, we expect that to be hauling be behind us in September so as of September will be could be on on a normal pace as it relates to those losses of business.
And I'll just add to that.
It's a gradual through the Q3 two right. So yes, a matter of that already have it was through Q2 and then the final part of it'll be a Q3 right.
Correct.
Got it.
So on that question of how do you have balance the the capacity constraints for demand on high.
Volume items between store brands ads.
RCP brands the answer is customer by customer product by product collaboration.
You know in.
As we are adding capacity that we are.
Managing that balance to provide in stocks for both and pausing items in both with it or on the lower velocity skews. So it really isn't partnership communications and decision, making with our retail partners because they want both products on the shelf.
Now in the case, though one case, where we had some severe capacity constraints on phone plates. We made the decision to really stopped production of pesky, Brad and went 100% storebrand on phone for a period of time.
And you probably saw that the scanner data in Q3 until we were able to get the the in stocks back and demand for the most part it's been a very balanced and we have not had that make significant decisions one way or the other.
It's been a balancing act of both.
Fair enough well well done thank you so much.
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We have no further questions at this time Mr. Mitchell I would now like to turn the floor back over to you for closing comments.
Well. Thank you everyone for your participation and interest in rentals consumer products.
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Ladies and gentlemen, this does conclude today's teleconference. You may disconnect you lines at this time. Thank you for your participation and have a wonderful day.