Q4 2020 Reynolds Consumer Products Inc Earnings Call
Greetings and welcome to the Reynolds consumer Products' fourth quarter, and full year 'twenty and 'twenty earnings Conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad and the reminder, this conference is being recorded and.
And it's now my pleasure to introduce your host Mark Schwartz Burke, Vice President of Investor Relations. Thank you Marc you may begin.
Thank you good afternoon, and thank you for joining us on Reynolds consumer products' fourth quarter and fiscal year, 'twenty and 'twenty earnings conference call on the call today are Lance Mitchell, President and Chief Executive Officer, and Michael Graham Chief Financial Officer. During the course of this call management may make forward looking statements within the meaning of the federal Securities laws.
Statements are based on management's current expectations and involve risks and uncertainties that could cause actual results and outcomes to differ materially from those described and these forward looking statements.
Please refer to Reynolds consumer products <unk> annual report on form 10-K and.
Other reports filed from time to time with the Securities and Exchange Commission and its press release issued this afternoon for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied and any forward looking statements made today. Please note management's remarks today will focus on non-GAAP or adjusted financial measures.
A reconciliation of GAAP measures to non-GAAP financial measures is available and the earnings release posted under the Investor Relations heading on our website up and Reynolds consumer products Dot Com. The company has also prepared a few presentation slides and additional supplemental financial information, which are posted on <unk> website under the Investor Relations.
This call is being webcast and an archive of it will also be available on the website.
Also like to note that we are conducting our call today from our respective remote locations as.
As such there may be brief delays cross talk or other minor technical issues. During this call. We thank you and advance for your patience and understanding.
And we would like to answer all of your questions. During the question and answer session and the interest of time, we ask that you ask one question and a follow up and rejoin the queue. If you have additional question and now I'd like to turn the call over to Lance Mitchell.
Thanks, Mark thank.
Thank you for joining us today.
First off I'd like to thank our employees for continuing to follow a prevention measures and putting safety first always both from the ongoing COVID-19 pandemic and for overall injury prevention.
For our agenda today, Michael will review our quarter it out.
I will cover our first years and public company and our business performance and.
121 priorities.
Together, our remarks will be approximately 20 minutes and.
And then.
We'll open it up for questions.
We reported record performance in 'twenty and 'twenty, our first year as a public company delivering strong results because of the hard work dedication and commitment.
Of our more than 5000 employees and a very difficult and buyer.
Revenue was up 8% driven by growth from our categories.
Ex and marketplace.
We increased brand support double digits and develop a strong new product pipeline.
EBITDA and cash flow grew significantly.
Even with the increase and Standalone costs.
And we paid down more debt, but expected at the start of this year and.
And we responded to the sustained and favorable share is demand for our products by expanding capacity without adding routes.
This sets us up for more growth and a year that will be every bit as dynamic as 2020.
Michael will speak to what that means for quarterly phasing force.
I'll set the stage by reviewing the consumer landscape and our business performance.
Consumer demand for our categories remains elevated.
Higher than we'd anticipated at the time and the IPO.
We're seeing a sustained and favorable shifts in demand for our products supported by the data.
80 per cent of families are cookie more meals at home 60 per cent of families stay the cooking and it's become a social activity and their household and <unk>.
60% of families are storing more and leftovers and freezing more food.
This goes hand in hand with trends and small kitchen appliances, where purchases are up double digits. So that's the start of the pandemic.
And among active users of our categories over 88% day that they intend to maintain or increase celebrated consumption of oil waste bags food bags and disposable tableware beyond 2021.
Turning now to our business performance and cooking and baking.
Reynolds brand family became a billion dollar brand at retail and 2020 driven by growth across its portfolio.
We see more strong growth ahead for Reynolds products and have expanded capacity accordingly.
This will allow us to improve in stock performance and execute against a substantial pipeline of business.
<unk>.
And it's also worth noting that service for this unit was impacted by staffing challenges and the fourth quarter and service has been improving since Europe.
That's the way from the storage also has momentum.
Waste bags and food that categories are large and growth and.
Lucky brand continues to do very well.
Innovation will pick up here to <unk>.
Including the introduction of hefty waste bags Senate with Fabulous.
License from Colgate Palmolive.
Pepe tableware showed resilience last year growing low single digits.
In spite of fewer and smaller holiday related gathering and a falloff in demand for business and restaurant.
The hefty eco say rollout continues to go well and we expect integration to be even larger contributor to the tableware growth this year.
Presto also on or 'twenty 'twenty, one with a substantial increase in capacity and produce solid growth. Despite the exit of low margin business and the fall of 2019.
We posted excellent and E commerce growth for the year and again on the quarter continuing our robust performance in this channel.
Our analysis indicates our E commerce share equal to or better than brick and mortar shares depending on the category.
As I said 'twenty 'twenty, one offers no lack of challenges and we expect comparisons to contribute to uneven quarterly performance.
We're confident we're entering the year stronger because of our commitment to our retail partners, our unrelenting focus on safety.
And the diversity and can do spirit of our people on.
Our 2021 priorities our safety.
Service.
<unk> ability and.
Business transformation.
We put safety first always and.
Improved upon our truckload rocket and 2000 and Suwanee.
We could get even better when we intend to do so.
This means a lower recordable injury rate and more emphasis on wellness.
And.
All of Us and members families and our products are integral the family life.
He will always come first.
Service improved for all book rental drop in Q4, and we're committed to further improvements staffing.
Staffing and continues to present challenges, especially given our commitment to safety.
And we're managing through that and on our 2021 with more capacity.
We're seeing further and soccer and purpose and expect our capacity increases will also support our growth.
Commodity.
Packaging and logistics costs are right on.
We're committed to minimizing the gross margin impact.
We are doing this through a combination of price.
Based on management.
Chairman and initiatives.
Hey, you rationalization and innovation.
We're monitoring talk friends daily and pivoting to protect margins and grow our business.
Well evolution as our business transformation book.
We're doing more here too.
Moving away and we do business, our manufacturing cost structure and our potential for growth.
And if they suddenly opening remarks, we accomplished a lot and our first year as a public company.
And we have more to do.
Our value proposition includes both branded and store brand products and we continue to provide valuable expertise to our retail partners.
And I'm confident our people culture and priorities will allow us to continue simplifying daily life with consumers, while also delivering another year of impressive financial performance.
I'll now turn it over to Michael.
Discuss our results and our outlook.
Thanks, Lance and good afternoon, everyone.
I'll briefly walk you through our results then speak to our outlook for the fiscal year 'twenty and 'twenty net revenues were a record at $3 3 billion up 8% over two 3 billion we had in 2019.
Growth was driven by a fundamental shift to more at home use of our products as well and the introduction of several new products.
Net income increased to $363 million compared to $225 million and the prior year with adjusted net income at 413 million for the year. The increase was primarily driven by higher revenue operating leverage and lower interest expense adjusted earnings per share was $1.
Seth.
Adjusted EBITDA was 717 days, which also was a record compared to $655 million and the prior year. The increase was primarily due to net revenue increases along with lower material and manufacturing costs, partially offset by higher personnel advertising and logistics costs.
Now turning to the quarter net revenues and our fourth quarter were $888 million and increase of 6% over the prior year net revenues of 835 minute growth was driven by strong demand most significantly and the hefty waste and storage segment and the and the introduction of new products adjusted EBITDA.
EBITDA for the fourth quarter was 198 million compared to 214 million from prior year decrease was primarily due to increased material and manufacturing logistics advertising and personnel costs, which were partially offset by increased revenue adjusted.
Adjusted earnings per share from the quarter was 57.
Turning to our segment results Reynolds cooking and baking net revenues increased 8% for the year driven by consumer demand and growth across the portfolio and the fourth quarter net revenues increased but we're constrained by lower inventory levels entering the quarter as well as COVID-19 related staffing challenge.
And as encountered during the quarter.
The decrease the decrease in adjusted EBIT and the fourth quarter was driven by higher logistics and advertising costs per hefty waste and storage net revenues increased by 15% for the year driven by consumer demand and the continued strength within the hefty brand and portfolio and.
And fourth quarter net revenues also grew double digits, driven by increased consumer demand and higher pricing and fewer trade promotions and in the prior year.
The increase and adjusted EBIT and the fourth quarter was due to revenue growth, partially offset by increased material and manufacturing costs.
For hefty tableware net revenues increased 2% for the year driven by the introduction of several new products and the recovery from my initial falloff in demand for business and restaurant items. Shortly after the startup and COVID-19 pandemic.
And the fourth quarter net revenues were up slightly driven by the impact of new products and higher pricing.
The offset by softness from business and restaurant items service by certain retail partners as well as fewer holiday related social gatherings. The decrease in adjusted EBITDA and the fourth quarter was primarily due to increased advertising and material and manufacturing cost.
Finally, presto products net revenues increased 4% for the year driven by consumer demand. Despite the exit of low margin business and the fall of 2019.
And the fourth quarter net revenues increased 6% driven by consumer demand.
The decrease in adjusted even the fourth quarter was primarily due to increased material and manufacturing cost.
Moving to and our capital structure and cash returns and we continue to be very pleased with the cash generating ability of our business, we reduced our leverage and 2020 and as of December 31, 2020, and we had a cash balance of $312 million and I'd.
Total debt outstanding of $2 2 billion.
And we paid another quarterly dividend of <unk> 22 per share and the fourth quarter, and and announced a 5% increase and the quarterly dividend and 220 <unk> per share payable on March nine 2021.
After a year and we made an additional voluntary debt payment of $100 million.
Now to our guidance I will review the expectations for the year and first quarter, and then I will speak to our underlying expectations and quarterly phasing.
For the fiscal year, 'twenty and 'twenty, one we expect net revenues to grow and the low single digits.
Net net income to be and the range of $412 million to $427 million adjusted.
Adjusted EPS to be and the range of $1 96 to $2 and <unk> per share adjusted EBITDA to be and the range of $710 million to $730 million on.
On capital spending of approximately $155 million, which includes approximately $25 million from the potential purchase of a manufacturing facility and we currently lease.
Net debt to be approximately one 7 billion to $1 8 billion at December 31, 2021 for.
For the first quarter of 2021, we expect net revenues to be up mid single digits. Adjusted net income to be in the range of 73 million to $77 million adjusted EPS to be and the range of 35 to 37 cents per share and adjusted EBITDA to be and a range of 138 million and so 100.
$43 million.
As you can see we expect another record year of net revenues. We also anticipate and a strong start to the year, but expect uneven quarterly profit growth due to volume and cost comparisons, especially in the second and third quarters as you revisit your models you should keep this in mind.
We are operating and much larger categories and that to start and Japan did make and see this as evidenced.
Sustained and fundamental shift in demand for our products.
Parents, since nonetheless will be challenging, especially in March and and the second and third quarters commodity packaging and logistics costs have increased significantly and market trends indicate potential for further increases we are committed to minimizing the profit impact of cost increases and a timely way to price and other measures.
And remember year over year commodities were a tailwind in Q2, and Q3 and 2020 and flow.
A headwind and the fourth quarter.
Labor shortages remain a watch out however, we will not risk employee safety to address them, we have been mitigating this risk.
Modified plant processes and targeted recruiting and training and we will remain vigilant and this area from.
From a full year perspective, we expect slight decline and gross margins and increase and the SG&A, reflecting A&P spending and wrap around Standalone public company cost.
And wrapping up there are a few.
Two things worth repeating.
Pleased with to be operating and categories that are larger than anticipated at the time of the IPO.
We remain committed to strong cash generation and cash returns.
And this includes further deleverage of net debt between two and two five times EBITDA and continued growth from dividends over China.
Thank you and with that I'll turn it back over to you Mark.
Thanks, Michael as I turn it over to the operator for your questions I'd like to remind you that we ask that you ask one question and a follow up and then rejoin the queue. If you have additional questions operator.
Okay.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate that your line is and the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Okay.
Thank you.
Our first question comes from Andrea Teixeira with Jpmorgan. Please proceed with your question.
Hi, Thank you and good evening.
So I was hoping if you can comment on.
And I guess.
Sorry on the trade I'm assuming.
And similar to have done in previous calls where you talk about what are you from your from your retail partners.
And also if you can comment a little bit on what is embedded in terms of commodity cost pressures.
And we won.
Hi, Andrew and thank you. This is lance and I'll talk about the fundamental shift in consumer behavior and demand versus retailer inventories and I will turn on the commodity question over to Michael Graham.
As I indicated in my opening remarks, consumer behavior, and our research indicates a strong and sustained fundamental shift and demand for our products.
And our research indicates that that's going to continue for the longer period of time.
When we look at it and stocks and stocks inventories throughout the supply chain as well.
But we've seen improvements and enzymes.
Perhaps most of our products and retail partners and the fourth quarter, we do expect retailer inventory and starts to continue to improve on Brad.
Absolutely.
We take the benefit of the capacity, we've added managed staffing and leverage supply chain improvements, it's a top priority of our organization and 2021.
And replenishment is yet to occur and most of our high velocity products. We are still at very low inventory levels throughout the supply chain.
Michael Yeah as it relates to commodities, we are very focused and on.
Our efforts to minimize the impact of higher commodity costs packaging and logistics costs.
And we plan to recover the overwhelming majority of our added cost to increase prices adjusted adjustments the level of promotions and or other actions.
Including things like SKU rationalization.
We've talked about this and the past we do recognize that there is always a lag as it relates to pricing. So we're always cautious.
About making sure that we are seeing the level of endurance from a commodity standpoint before we make the make the decision.
But overall, we think we have a good process.
Very tight net.
<unk> has served us well and the past and I'm sure it's going to surface well go on for.
And just a follow up Michael on that.
That's an interesting point about pricing because we heard from one year or two.
Competitors on.
On pricing and and they spoke about non increasing prices during the pandemic.
And you're talking about aluminum oil related.
Are you talking about bags.
And Andre let me take that question first of all it does our pricing strategies do vary across the different products and categories.
And we are taking pricing on all of those products, where they are impacted by commodity including waste bags or waist bag business has been a path of strong growth for us for over five years, and that's attributable to our products performance, our advertising and the value we offer to consumers.
And that combination resonates with consumers.
We're spending more time at home, they're using our products more and we'll continue to focus on superior value proposition, which is delivered by a great spokesperson and John Cena.
And absolutely aware of our competitors pricing and we've modeled elasticity impacts across our business. We will continue to focus on our core mission of serving retailer partners and consumers innovating protecting profitability and deliver on growth and we have already implemented one price increase.
And that product line.
Great. That's helpful. Thank you price it at all.
Okay.
Thank you. Our next question comes from Bill Chappell with Suntrust. Please proceed with your question.
Thanks, Good afternoon.
Yes.
I guess first.
If you if we take a look back on the tableware business.
Up 2% per year, where there weren't a whole lot of outdoor pick net gatherings.
Is there a way to kind of quantify or gauge.
And what that would've been with and in a normal year or how far that.
How much you could actually make up and are reopening environment.
Yes that would be a very complicated math exercise that I don't know, how I would be able to answer that I can't say on.
And the tableware business is really a tale of two cities. There are items that we sell that are primarily for restaurant items and small businesses that go through certain retailers and as you would expect those product lines.
And typically declined through most of the year, we saw a slight rebound in Q3, but those product items, we expect to gradually rebound in 2021, that's factored into our guidance, but not return on average the prior level, we were at prior to the pandemic.
Summer items are driven by two things one our holiday gatherings, where we saw fewer holiday occasions, particularly I think Q4, where there were less holiday parties and.
Those holiday parties and.
Impacted the use occasions for the tableware products. However on the flip side of that we had new product introductions, which included our eco safe.
Paper fully compostable disposable paper products and.
As well as everyday use occasions or disposable tableware.
Consumers got tired of Washington dishes every day. So that's why I say there is a lot of moving parts very complicated math to try and figure out what that growth would be otherwise, but I think a growth year with all of those factors working against that business is an excellent outcome and speaks well for the future.
And potential for our tableware business.
Got it no. Thanks for the color I know, it's a tough tough tough to gauge.
Switching over just a follow up on Presto.
I guess in most categories of our CPG categories.
The the trade up to more premium or to trusted brands or what have you that it affected both private label and store brands and even value brands.
Are you seeing that start to.
Wayne and I guess consumers get back to more normal purchasing or is it still having any drag on presto and do you expect that to kind of continue and the first half of this year.
Well broadly speaking and our brands have outperformed private label and store brand business and a sense of the pandemic and looking forward.
Our commitment is to grow our categories and that means providing a balance of brands and store brands to ensure that consumers have choices that expand the category.
We have invested significant resources over the years as part of our strategy to differentiate ourselves from our supply from other suppliers by providing both brands and store brands and supporting that with the.
And the industry category management teams, we distinguish ourselves with our retail partners as a result.
On a winning formula since day, one when we formed the company and 2011.
And we expect it to be a winning formula going forward.
But I'll remind you that what I've said since the roadshow is the balance between brands and private label and these categories has been very stable over.
Over the years and I assume.
And so some of that to the private label already representing a significant portion of this category. There has not been a significant shift during this pandemic nor would we expect one after.
Okay.
Great. Thanks, so much.
Thank you Bill.
Thank you. Our next question comes from Kamil <unk> Waller with Credit Suisse. Please proceed with your question.
Hello.
Camille you might be on mute.
Okay.
Alright, guys come on.
My mistake, and I think and do that once a day.
Yes.
I was on.
Michael I want I wanted to ask about Capex and and.
And our hurdle rates and such.
I have to imagine that you know at the time of IPO or the years prior and you probably had some pretty specific hurdle rates, but now you're on.
And putting in capital to catch up with capacity, which is something that maybe.
Given how the the outlooks on the categories have changed quite materially maybe you're just looking at it differently. So can you maybe just talk a bit about how you think about returns on capital and that sort of thing and.
If I could just ask my follow up now because it's related to this as well.
And what sort of protections do you feel like you have in place and case.
The researches and accurate and case, we do end up.
Reversing or on the categories don't grow at the rate that.
And the research right now indicates that they should grow you have some sort of safeguards on what you'll do with the capacity that you have on hand.
Yes, so talking to capital and the hurdle rates.
And we basically look for is a payback that somewhere in the range of $2 seven two to three years right and so.
We're pretty diligent about that overall process, both Lance and I are very involved and the capital approval process. We review all of the capital projects before they go forward.
And so we've been pretty successful at that and we also have a very rigorous post project review process on the backend of this that we go back and evaluate how did how did it perform against the expectations and if there was something that was slightly off how do we correct that going forward. So our process is pretty tight and when our.
Expectations from a payback standpoint, I think a reasonable.
And I guess I'll answer the follow up part of that sale.
We did.
To establish very significant and robust contingency plans and the event that our forecast is off and we share that our board of directors meeting recently.
And essentially boils down to two things one our capacity did not <unk>.
Involve adding additional roofs, and the capacity, we added and lower costs than our existing capacity and so.
We will be able to utilize that lower cost capacity and the event that we don't have as much demand.
And we still use third party suppliers for some of our products and we wouldn't be able to repatriate.
Some significant parts of that volume back into our own capacity as a safeguard. So I think are contingent on contingency plan is very robust and provides us with a solid safeguards and the about the the forecast that we've established which we believe are strong and solid based on.
Our off.
Got it thank you very much.
Yeah.
Thank you.
Thank you. Our next question comes from Nik Modi with RBC capital markets. Please proceed with your question.
Yes. Thank you good evening everyone.
And so Lance I just wanted to ask about your comment about private label and how you haven't really seen things change over the years, but.
And one thing, that's becoming clear to us and discussions with retailers and they are looking to expand private label and leading brands and kind of all that metal that has always been speculated to kind of shrink. It's actually finally being put in practice do I have that right and can you just kind of talk around Europe.
And very unique position and having both sides of that equation.
Well and our categories. These categories are already highly penetrated with store brands. So some of the categories. You may be hearing from retailers or our categories that don't have that significant penetration that we see across most of our product portfolio.
It's a different situation, perhaps and other categories.
As the category captains have.
Significant insight and the trends that are occurring and as you pointed out we are on both sides of that equation. So our focus is on growing the total category and we win as long as the category is growing.
Great.
Good point.
Just a real quick follow up.
Any changes and the new product introduction cycle or resets are things back to normal I know 'twenty and 'twenty, what's kind of a weird year for obvious reasons, but as 2021 going on kind of take the normal shape of resets and innovation curves.
We actually saw a resurgence of retailers.
Looking for new product innovation as we entered the latter part of third quarter going into fourth quarter.
And on approximately 160 basis points of our revenue growth and the fourth quarter and 2020 came from new products and approximately 22% of our net revenues came from products that are less than three years old.
We expect a significant benefit from innovation again this year and we've got a long list of new products that we're introducing I highlighted one of my opening remarks, but we've got several new products and the Reynolds family, including a 100% recycled aluminum foil and a change on the way that we're positioning on our non stick foil grill bags per.
Plaster graph stay on until perhaps the close food bags.
Yes.
And many others that we're very excited about the new product pipeline and we'll be launching in 2021.
Excellent. Thank you I'll pass it on.
Thank you. Thank you. Our next question comes from Lauren Lieberman with Barclays. Please proceed with your question.
Great. Thanks, so much.
And and.
And so you just mentioned a few and your products and in the food bags side of the business and that.
Was curious even before that was mentioned when we talk about the hefty business, usually it's focused on trash, obviously ex the relative size of the business, but when you talk a lot about some of the consumer trends.
And that are at play and has a lot to do with more of the the food storage side of the business. So I was just curious about if you're willing to you're talking about relative growth rates of those two even if it's from a sort of high level.
And thinking about the balance of those two portions of that business going forward.
Within the <unk> portfolio or you mean overall.
Yes.
With and Hep B are are challenged areas continues to be we are making and selling as much as we can we've been challenged with the.
The continued demand and what you're seeing and the scanner data reflects the the outpaced.
And you would use a storage bags, particularly court and gallon sliders, because consumers are storing more food leftovers and freezing more leftovers and it's.
We're not seeing that kind of growth yet at the sandwich bags, but theres, a significant double digit growth continuing and.
Food storage bags, and the court gallon size.
And waste bags.
That category continues to grow significantly year over year because of families and spending more time at home and as a result, they are generating more use of pop kitchen as well as large black box.
Hello.
Mhm.
Paul.
Yes, one moment.
If you would like to ask a question.
Please press star one on your telephone keypad.
Our next question comes from Mark Astrachan with Stifel. Please proceed with your question.
Okay and.
Thanks, and good afternoon, everyone.
Yes.
And I wanted to start with the quote in the press release and kind of understand it a little bit better. So what is sustained and fundamental shifting consumer.
Demand mean to you all and how do we think about what would be baked into your view or expectations or.
Whatever reopening whenever reopening looks like and consumers are spending less time at home.
Well as we've said you know what our research shows is impact on activity is going to continue to be up significantly.
Before it was a net 40 pandemic, which translates into new and favorable habits for US families are cooking more meals at home millennials and Gen Z and <unk> are adding to that because they are growing and using our products more often.
60% of families are saying they've discovered that cooking has become a social activity and something that they intend to continue for the long term post 2021.
And small kitchen appliances are up so they're going to continue to use those.
We do recognize of course that when the reopening gradually occur throughout 2021 day, there won't return to levels that we saw in the March and April timeframe, and we've factored that into our forecast, but the combination of.
And continued staying at home more frequently cookie more frequently at home.
And driving use of our product screens that are categories will have consumer demand higher than they were at the time of the IPO time of the IPO, we were expecting these categories to grow on 2% to 3%.
Now looking at those categories from our research to grow about twice that.
Got it.
While still digesting that last point.
Interesting.
I guess you.
Sort of related to that.
Do you think about the spend.
You want to invest reinvest on on advertising media et cetera, given the change and the consumer right. So, it's obviously been and consumer pulling as opposed to you're kind of pushing how do you think about that and how is pandemic kind of changed that and how does it change the way that you approach selling your products.
Well, our advertising has changed fundamentally to focus on two things, one millennials and Gen Z and ensuring that since they've come in on the category that we retain and keep them on the category, which includes tips and tricks on how to use the products.
It also changes the approach to the advertising and that it's more digital to reach them.
And and we're focusing on less trade because trade is not required at this point and time to be able to promote our products. So the combination of how we invest with advertising and trade.
It's something we evaluate literally on a.
Frequently basis, but those are the primary goalposts, we're using as we look at the the approach.
Got it thank you all.
Thank you Mark.
Thank you. Our next question comes from Cody Ross with Goldman Sachs. Please proceed with your question.
Hey, good afternoon, everybody. Thank you for taking our questions.
Just wanted to talk a little bit about your gross margin outlook I believe you said down a little bit.
However, we are seeing meaningful increases in commodity costs.
How do you expect to achieve but down a little bit when if I look back to 2017, and 2018, which is where commodities are now your gross margin declined about 100 to 200 basis points and then I have a follow up.
Yes.
First of all I think when you think about our margins you need to look at it from a perspective of.
From a volume perspective, and when you account for the fact that.
Net.
And that our volume.
And he is in line with our raw.
<unk>.
And our volume is in line with overall margin increases.
We're seeing we're pretty pleased with that overall process. So I think what you may be looking at us.
The decline and overall margins, but when you look at it from volume perspective, and equate out the impact of pricing is actually up slightly.
Okay.
So despite.
And the commodity costs moving back to 2017 and 18 levels. You don't think you would see.
And at least 100 basis points decline.
And by the higher volume.
So I think theres two things to consider here one is we our factory pricing, including trade into our forward plan, meaning reducing trades. So it's important that we are saying very clearly here, we are going to take price to offset commodity costs.
The timing of that could have some impacts right theres always a lag between the time, we get a cost increase from our suppliers to the time that we are able to fully pass that onto the market.
But we will take price. We also have other levers that we're employing to ensure that we protect our profitability and addition to price that includes cost reduction initiatives that we have a revolution manufacturing productivity initiatives and.
And other actions that we can take from a cost standpoint.
We will also be employing those levels, what Mike is saying is look at the numerator the numerator will be going higher so that alone can impact your percentage of your gross margin. The total margin dollars are what is most important that we protect.
While we're growing volume.
That makes sense.
And then I just wanted to touch real quick on your Q1 guidance for sales being up mid single digits. Any color you can provide on each of the segments would be greatly appreciated.
<unk>.
Well I'd say first of all on all of the segments you know we have.
Fairly easy comps in January and February because of the pandemic impact of our categories. This year versus last year, and then March as Michael pointed out in his opening remarks that was a stock up period for consumers across some of our products.
Which.
Which.
Is going to.
Be partially offset by the fact that we are going to need to replenish inventory levels at retailers in order to get our in stock performance and our service levels back to our retailers expectations and our expectations of course tableware will be the channel just because it's a.
That's the one segment, whereas I've talked about earlier and todays call on and other forums.
We've got a lot of dynamics, there relative to year over year changes with business items as well.
Gatherings.
Easter Memorial day, and so forth.
Great. Thank you very much I appreciate it.
Thank you Cody.
And.
Thank you. Our next question comes from Rob on <unk> with Evercore. Please proceed with your question.
Great. Thank you very much and.
<unk> is on a great start as a public company.
Apologies to go back to the pricing question, but we are we get a lot of incoming.
Queries on this from investors so.
It's important.
Kidney can you give us some sort of sense.
Of.
The consumer and customer reaction.
To your price increases on on hefty given the fact that your main competitor doesn't appear to be following yet and kind of how the consumer has reacted.
<unk> talked about elasticity.
Going on there.
And maybe perhaps differentiate between branded and private label.
Well first of all our retail customers are our partners and any price changes that we take us and on.
<unk> pattern of increased costs, we share the data with them, it's a collaborative process.
And we have a strong understanding of the elasticities and our categories a change product by product.
And the models are not the only thing we do when we do it category by category.
Being a supplier of branded and private label products gives us an advantage by making pricing decisions that are wins for both retailers and consumers and helping.
Growth of total categories.
The additional pricing that we've announced.
Since the fall and.
Generally been accepted and implemented according to plan.
And that includes both brands and store brands.
Terrific and then just pivoting over to.
On the aluminum business.
What is the outlook there on commodities and do you feel that you can.
<unk> reduced the number of sheets I think thats, something we talked about in the past.
And if needed to avoid sticker shock.
Well, it's certainly something we can do it does take longer to implement that strategy and the reality is that we are running a different elasticity model now because in that particular category.
Post pandemic, we believe the elasticity model has changed so before we take a pricing action.
And is either fewer feet or crossing a price threshold, we're going to complete that analysis and then make a decision.
And can you elaborate on how the models change please.
Yes, the consumer demand fundamentally for the category are significantly higher and there and there has been less.
There has been left to sell.
<unk> about specific price points during the pandemic there's been.
There's been almost no promotion of this category in the back half of the year, including during the critical holiday period of Q4 and yet demand.
Remained strong through that period of time, because consumers are just fundamentally using the product more.
So the business is just fundamentally become more valuable and you have more pricing power.
I would say that the consumer has value the product more as a.
They're staying at home and cooking more of the value of the product or and therefore.
Fundamental demand has increased.
Terrific. Thank you very much that's very helpful.
Thank you.
Thank you. Our next question comes from Cornell.
Got her wallet with credit Suisse. Please proceed with your question.
Hi, Thanks, guys for taking another one.
I wanted to see if we could dissect the revenue outlook, a little bit and that.
It looks like you have more demand from your categories, you have inventory that you need to replenish at retail.
And there'll be some pricing in that figure. So can you maybe try to breakdown as it is and a third a third a third or half and two quarters.
Maybe just kind of breaking down the guidance for the full year for the quarter.
What you expect for the full of 'twenty, one yeah, yeah and so.
The lion's share of that is pricing.
So when I when I think about it and I don't know if I can give you the exact percentages but.
Greater and greater and 60% of that is in overall pricing and.
Particularly in Q1.
Got it and then when you think about the revenue growth versus EBITDA. It looks like you are taking hold.
A whole series of measures including pricing to.
Managed inflation on raw materials, but.
It does look like Youre looking at EBITDA, maybe closer to flat for the full year, but revenues up from the full year. So is that just youre, taking as much as you can but you expect some contraction or is there something else going on between those two line items.
No. It's a couple of variables in there and obviously there is there is the impact of timing.
And land.
Lance just talked about the overall lag that we've got.
Sometimes you have on pricing so that's a big variable and that overall change that you are looking at.
Yeah.
Okay got it thank you.
Thank you there are no further questions at this time.
I would like to turn the floor back over to Lance Mitchell for any closing comments.
I would like to thank all of you for your questions and we value per your perspectives and we appreciate the time you've taken to be with US This evening.
Please stay safe thank you.
Yeah.
This concludes today's call you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.
And I understand.