Q1 2021 Reynolds Consumer Products Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Reynolds consumer Products' first quarter 2021 earnings conference call on.
At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session and for.
Anyone should require operator assistance. Please press star zero on your telephone keypad.
Please be advised today's call is being recorded I would now like to hand, the conference over to your speaker today Mark Schwartzberg. Thank you. Please go ahead.
Thank you and good morning. This is mark Schwartzberg and thank you for joining us on Reynolds consumer Products' first quarter 2021 earnings conference call on the call today are last Mitchell, President and Chief Executive Officer, and Michael Graham Chief Financial Officer for.
Our agenda today landfill focus on market conditions, our fundamentals on our 2021 priorities and Michael will review our quarter on outlook together, our remarks will be approximately 15 minutes. Then we'll open it up for your questions. During the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management's current.
Send that involve risks and uncertainties that could cause actual results and outcomes to differ materially from those described in these forward looking statements.
Please refer to Reynolds consumer products 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 morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied.
Any forward looking statements made today.
Managements remarks today will focus on non-GAAP or adjusted financial measures a reconciliation of GAAP measures to non-GAAP financial measures is available on the earnings release posted under the Investor Relations heading on our website at Reynolds consumer products Dot com.
The company has also prepared a few presentation slides and additional supplemental financial information, which are posted on Reynolds website under the Investor Relations heading this call is being webcast and an archive of it 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 advance for your patience and understanding.
We would like to answer all of your questions. During the question and answer session. In the interest of time, we ask that you ask one question and a follow up and rejoin the queue. If you have additional questions and now I'd like to turn the call over to Lance Mitchell.
Thank you Mark.
Due to the continued dedication of the RCP team, we delivered another outstanding quarter in a challenging environment.
I'm extremely proud that we grew revenues, 4% in spite of February storms.
Unrelenting supply chain challenges.
We expect for factors to drive even stronger growth over the balance of the year.
Those are.
Consumer consumption.
Price increases.
Innovation.
And our increased supply chain capabilities.
We entered 2021 expecting higher consumption to stick.
And we're seeing those higher level this day across our business.
According to our latest Paris pool.
Which we have been doing in successive ways since the start of the pandemic.
Every day use of oil is up five four.
First is pre pandemic levels.
Usage of waste bags per week is up more than 30%.
And weekly flight or food bag usage is up nearly 40% versus pre pandemic levels.
As a result.
Dollar sales of foil waste bags parchment and other categories are growing at average annual rates well in excess of rate proceeding the pandemic.
Other categories that are more sensitive to away from home activity, including party Casa disposable dishes.
Our posting accelerating two year CAGR.
This is a great environment for sales growth and our product portfolio is performing very well.
Our brands share in oil parts, but in other categories is increasing.
Following substantial increases in capacity and our pipeline of new cooking and baking products is very strong.
After you wasted storage is also benefiting from significant and sustained increases in consumption.
And innovation is increasing here too.
Pepe table, whereas notching game as demand accelerates, including dollar share gains and party cuts and disposable dishes.
And Presto.
Has expanded distribution for several major store brands and we believe we are well positioned to make additional GAAP.
Also wanted to note that we're investing alongside our customers ecommerce priorities.
The next driver of our revenue growth is price.
Our brands and product portfolio our strong.
Positioning us well for price increases and one of the toughest commodity cycles that I've ever seen.
We're communicating with our retail partners and we've already implemented price increases across our businesses in Q1.
As a result of higher commodity logistics and related costs.
Second round of price increases is underway.
And we're planning for a third round to be fully implemented in Q3.
This pricing is intended to offset estimated cost pressures on an annualized basis.
Hello.
Timing is such that we expect considerable margin pressure in the second quarter, followed by sequential improvement from there.
Michael will speak more to that but I want to underscore this.
We believe we have the pricing plan on a product portfolio to recover margin, while also maintaining business momentum.
The third driver of our strong growth is innovation.
We expect increasing innovation benefits as we move through the year.
Cooking and baking expanding.
Expanding and upcoming launches include Reynolds wrap everyday non stick foil Reynolds wrap 100% recycled foil.
Reynolds kitchens Butcher paper.
Reynolds kitchens from postal wax paper and Reynolds wrap star a restaging of the Reynolds wrap portfolio with up to date easier to use packaging.
We're also deploying a high level of innovation and waste storage, including the recent national launch of hefty waste bags.
On it with Fabulous zone.
License from Colgate Palmolive.
And hefty tableware, the new eco saved wine was recently awarded product of the year and the tableware category.
By product of the year USA, the largest consumer voted award credit basin.
Distribution of eco safe.
<unk> to expand.
And innovation is not just limited to our brands.
<unk> new product development performance demonstrates that innovation continues to be a revenue contributor for that business segment.
Our fourth growth driver.
As replenishment at retail.
We entered 2021 with the benefit of significant increases in capacity, which contributed to improvements of in stock levels.
Near or exceeding 90% in most of our categories.
This is a credit for the entire R. C. P T.
But there's more work to do and we will drive further improvements and as we do.
We expect to see retailer replenishment contribute to growth.
Before I turn the call over to Michael a few final comments.
I Hope you saw our 2020 annual report in which we introduced our environmental social and governance framework Engulfs.
We're committed to reporting progress in the quarters and years to come and look forward to doing so in partnership with you and all of our stakeholders.
Secondly, this is an exceptionally challenging environment.
Our people continue to demonstrate the resilience integrity and can do spirit that make me confident that we're becoming an even stronger organization.
And finally.
I Hope you can tell we're focused on responding effectively to the immediate cost and supply chain pressures we face.
We are stewards of great brands, and exceptionally strong product portfolio and a winning business model.
Many of you heard me speak to that at the time of the IPO and it's even more true now.
It is clear from the data the favorable changes in consumer behavior are sustaining making our long term growth and earnings potential even greater now than it was there.
Over to you Michael.
Thanks, Lance and good morning, everyone before I turn to our results and outlook I'd like to point out a couple of things.
Obviously, a challenging cost environment, but one that we see as temporary we have a track record and the tools to ultimately offset cost increases over time and.
And we remain committed to strong cash generation and a disciplined capital allocation, including deleverage to net debt between two and two five times adjusted EBITDA and continued growth of dividends over time.
Turning to the quarter net revenues in the first quarter of 2021 for $757 million, an increase of 4% over prior year net revenues of $730 million.
Growth was driven by pricing to offset rising input costs and lower low levels of trade promotion. We saw an estimated two percentage point impact to the first quarter net revenues due to February storms, which primarily impacted the waste storage and presto business segments.
EBITDA for the first quarter was $140 million, an increase of 4% over the prior year adjusted EBIT of 135 net.
Growth was driven by the increase in net revenue, partially offset by higher material manufacturing and logistics costs.
Adjusted earnings per share for the quarter was 36 cents.
An increase of 20% over prior year adjusted earnings per share of <unk> 30.
Turning to our segment results.
Reynolds cooking and baking net revenues grew double digit in the first quarter driven by lower levels of trade promotion and increases in volume in addition to price increases.
Adjusted EBITDA increased 33% in the first quarter driven by increase in net revenues, partially offset by higher material manufacturing and logistics costs.
For hefty waste <unk> storage net revenues grew 1% in the first quarter driven by price increases and lower levels of trade promotion, while volume was negatively impacted by storm related disruption in February.
We estimate February storms had a 3% negative impact to revenue for the quarter for <unk>.
20% decrease in adjusted EBIT in the first quarter was due to higher material manufacturing and logistics costs, partially offset by lower discretionary costs.
Perhaps the tableware net revenues were down 4% in the first quarter as lower levels of trade promotion were more than offset by lower volume, which was driven by fewer social gatherings, which we believe were for not fully offset by increased everyday use occasions.
A 3% decrease in adjusted EBIT in the first quarter was primarily due to higher material and manufacturing costs.
Finally, presto products net revenues decreased slightly in the first quarter as price increases were more than offset by volume impact of storm related disruptions in February.
We estimate February storms had a 6% negative impact to net revenue for the first quarter.
A 22% decrease in adjusted EBIT in the first quarter was mainly due to higher material and manufacturing costs.
Moving to our capital structure and cash returns as of March 31, 2021, we had a cash balance of 144 million net total debt outstanding of $2 1 billion, we paid a quarterly dividend of 23 per share in the first quarter and we will pay another quarterly dividend of <unk> 23 per cent per share in the second quarter payable on may.
27 2021 now.
Now to our guidance, which we have updated versus our previously disclosed guidance.
Starting with our guidance for the year, we are increasing our full year revenue outlook expecting high single digit revenue growth on the basis of continued elevated consumption innovation retail replenishment and pricing with pricing expected to contribute to the majority of growth.
Our cost outlook and pricing plans are informed by current commodity indices, which have been extremely dynamic since the beginning of the year.
We're facing in year cost pressures approximating to exceed 300 million driven by increases in commodity and logistics rates.
Price increases have been implemented in a second round is underway with plans for a third one to be implemented in the third quarter.
The magnitude of the increases will be determined by the level of commodity cost changes.
We expect increased gross margin pressure in the near term and on.
Focused on tight management of SG&A to help offset near term cost increases on.
On an annualized basis aggregate pricing actions are expected to cover the increases in input costs, but we are lowering our expected full year earnings to reflect the short term implications on pricing.
Well costs are still increasing.
As we anticipate pricing to catch up to increased input costs through the rest of the year margins are expected to expand sequentially in the third and fourth quarters. As a result for the fiscal year 2021, we now expect net revenues to grow in the high single digits adjusted net income to be in the range of 300.
84 million to $407 million adjusted EPS to be in the range of $1 83 to $1 90 for adjusted EBITDA to be in the range of $670 million to 700 million and capital spending of approximately $155 million, which includes $25 million for the recent purchases what manufacturing facility.
Which we previously leased.
And net debt to be approximately $1 8 billion at December 31, 2021.
Turning to the second quarter with additional pricing going into effect during the quarter. We expect high single digit revenue growth in the second quarter with pricing expected to contribute approximately two thirds of the growth.
<unk> and logistics costs have increased resulting in more pronounced margin pressure in the second quarter. We see this as temporary as our second round of planned pricing goes into effect.
We expect gross margins to be down approximately two to three percentage points versus our first quarter gross margin of 25, 4% half of which is solely due to higher revenue from higher prices as.
As a result for the second quarter of 2021, we now expect net revenue to grow on the high single digits. Adjusted net income to be in the range of 76 million to $83 million adjusted EPS to be in the range of 36 to 39 cents adjusted EBIT to be in the range of $140 million for $150 million.
And wrapping up there are a few things worth highlighting our revenue was growing and we expect even stronger growth driven by consumption price increases innovation and increased supply chain capabilities. Our second round of price increases is ramping and on an annualized basis, we expect full recovery of margins based on our.
Current cost outlook, our second quarter is the most challenging because costs have not stabilized and it does not fully reflect a second bonded for pricing actions beyond the second quarter. We expect continued revenue growth and gross margin improvement as we move through the year and.
And we remain committed to strong cash generation and disciplined capital allocation.
With that I'll turn it back over to you Mark Thanks.
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 on a follow up and then rejoin the queue. If you have additional questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our first question comes from the line of Nik Modi with RBC capital markets. Please proceed with your question.
Yeah, good morning, everyone.
A point of clarification.
What exactly was the issue with the Texas storms in terms of the impact that you can I'm just trying to get some more clarity on that and then the broader question is Lance last quarter, you made a pretty bold statement about category growth rates doubling post pandemic.
Relative to what you saw during the IPO roadshow.
Certainly it seems at this point you know that was a pretty prescient comment, but I just was hoping you could provide an update on based on what you've seen you know do you still think it's two ex or do you think it'll be more like one and a half ex or something along those lines.
Okay I'll start.
With the issue with the storms and ask him to add onto that with more specifics.
But the issues with the storms were first of all we had two plants in Texas, which.
On which were closed for over an entire week.
We had low production that we were able to achieve or shipments as a result of customers.
We also had multiple call lines across many other manufacturing locations with high absence rates due to the storms and other states during that period of time, which resulted in lower productivity and lower volume shipments.
In addition to that freight.
And being able to ship to customers on a timely basis and be able to get shipments out during the quarter.
Was impacted due to the availability of trucks.
Those were the three primary factors, Michael do you want to add to that.
Yeah.
Can add a few things of that so when you think about the storms that the biggest driver of that overall impact.
Disruption that is created as it relates to availability of a <unk>.
Trucks being able to get to our destinations as a result of that we saw a significant increase costs in that particular area as well as the challenged our ability to get you know cases out to door beyond that you know obviously you know there was incremental freight costs in this particular period as the availability was a little tighter and there was about.
For two energy for people to price up accordingly, and we add to accommodate those overall pricing. So those also influenced the overall challenges that we saw as it related to that.
I will also add that on a number of our retail partners had retail stores shut down during that period of time, which also impacted some sales on a quarter.
Turning now to the growth rate.
To be clear from what I said at the last earnings call is if you look at a two year CAGR for our categories.
We expect continued growth and the growth of the category is continuing stronger than they were pre pandemic.
And if you look at the category growth on a two year CAGR.
Bearing out oil is growing over 6% waste bags over five food bags near five.
Alrighty Cups eight.
And disposable dishes nine so on a two year CAGR, which was what my reference was.
Two to communicate we are seeing those kind of growth rates and I think all of us would agree.
But based on all the data that the category growth rates pre pandemic.
Now post pandemic, we're seeing higher growth rates.
So I appreciate the opportunity to clarify that comment from last quarters.
The cash.
Great. Thanks, Scott.
Thank you. Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.
Hey, guys.
Thanks for sneaking me in.
Couple of questions. So first on price increases you said, you're looking for three rounds.
How did the conversations go with retailers and round one how are they going in round two and what gives you confidence that round three will go smoothly as well.
Thanks, Jason.
Retailer receptivity to pricing the pricing actions, we plan for Q1 have been fully executed exactly as planned.
Our retailer customers are our partners.
And pricing conversations are never easy.
However, the current cost environment supports additional cost increases that we showed on the detailed cost.
But we're seeing so that we can provide them with that information. So they see the cost which is part of the reason for acquiring the price increases the level and timing of additional price increases and decisions are made on a customer by customer basis.
The Q2 price increase most of that is in the may timeframe and as near implementation or being implemented as we speak and then Q3 planning is underway.
Last month I can take the confidence on it.
Net.
Sure so.
There are a number of factors kind of baked.
Baked into the confidence level that we have around our pricing actions.
First is the strength of our brains on land has talked about that earlier that gives her history. You know we've definitely had an exceptional period of increases and we acknowledge that but.
Truly this is what we do this as we manage we manage students commodity cycles and have had a track record of being able to fully offset cost increases in the past.
Third is our price it we already operating at higher levels of pricing then those entering in the year and additional pricing increases are well underway and sticky as Lance mentioned and then fourth is our cost comparison remembering too for 2020.
We saw increasing pressures from sequential increases in commodity and logistics costs. So as we ramp up into the fourth quarter, our comparable who will be a little bit easier from that perspective.
Okay. That's helpful and one more question.
Based on how you you talked about your guidance and your high single digit revenue forecast with most of that coming from price. It suggests that you're not expecting volume declines.
And I guess the question there is why shouldn't we be looking for volume to be down for a five 6% when we contemplate that theres going to be some degree of likely cross price elasticity with competitors, perhaps not moving as quickly and second launch we're not out of a pandemic yet you're calling from three different locations today in workplace mobility is still down.
30% from from a pre pandemic levels.
That's probably going to change in the back half of the year.
It seems like the base case is to assume that you would see contraction in the third or fourth quarter or just underlying consumption your category.
So am I right that you are you baking for flat volume and are there offsets those factors that should give us confidence in your ability to get there.
Well two things I would say first of all we are updating our elasticities models and it's early and updating those but the elasticity models point, the fact that with inflation being a.
Across multiple categories, not just ours that a new normal over the last two city is.
<unk> is being evaluated by consumers.
Secondly, we did do on evaluation of open states that had higher levels of mobility versus <unk>.
States that were still quote close that had lower states of mobility and the law.
<unk>.
For an eight week period.
And did not see discernible differences in price.
Kris consumption.
Between those those two areas. So we see strong consumption continuing post pandemic.
And Lance this is Marc if I could just add one thing to hear your response there for you Jason think about the fourth quarter remember fourth quarter last year. We were of course are somewhat capacity constrained and a very important period for us think about particularly the cooking and baking unit. So.
So we didn't promote quite the way we normally would so that comparison dynamic coupled with our desires from out here in the fourth quarter of 2021 I think it's also something you should keep in mind as you think about volume performance as we move through the year.
Understood that makes sense. Thank you guys.
Thank you. Our next question comes from the line of Andre on to here with J P. Morgan. Please proceed with your question.
Thank you good morning, so I want him for a follow up on how are you we can track on.
On the Nielsen data and pretty much on the track data how are you seeing consumption now for the cooking and baking segment are you able to actually grow.
Partially as I said it was pricing.
And we only going into those new sales later today, but.
If you're seeing any green shoots Conversely on the other businesses, especially the ones that you sell to like each of the like for the mom and pop service is that I believe at Sam's club.
As for mobility improves on the lap the weddings graduations and other social gatherings that happening.
In the spring last year, when we see something positive.
Positive for now or we should.
Our business is this something that's going to be washed out true the tough comparisons ease of getting the second quarter and in terms and does the fact that volume question and in terms of a follow up for the cost pressures I mean in fact on my math correctly, you'll have a double digit cost pressure you're fat by day.
And of the are you going on on an annualized basis, you're going to lap those $300 million that you called out.
But can you also for some other levers and decided we will weigh evolution before.
Kind of like.
Innovation that is cost effective can you walk us through the bridge for the Cogs and see how we can we can actually see the puts and takes for marketing.
Yeah.
Yeah.
Thanks, Andrea I'll I'll talk about the Nielsen consumption data in the <unk> question, and then I'll ask Michael to talk about the Cogs range.
And that you asked.
Also on consumption data continues to show on strong consumption, albeit we are now lapping a period, where there was some pantry loading in the March and April timeframe of prior.
Prior year.
We're very encouraged by the continued consumption across all of our categories.
And our brand share in those categories. During this period of time.
From a <unk> standpoint, we are seeing the.
For the tableware and disposable products and b to be accelerating.
We've seen very strong sales.
In the back half of Q1, we.
We expect that to continue as we go forward into Q2.
Okay.
Any further follow up on those before I turn it over a M G for the Cogs Bridge.
Yeah, No that's great and I think that's gonna ramp remind us again when that business was a hefty tableware was more impacted I know it was puts and takes between the coffee.
Pandemic you had initially a negative impact and then later on customers who are using disposables at home. So second quarter definitely in our society is an easy comp and then I believe the third but then there for fish Martin on my life is better.
Is that a good metric and then we.
Weighted to that before you pass it on for Michael.
On the cooking and baking segment do you think inventory on the trade kind of caught up.
For volumes or Conversely, you see that it kind of like even the Nielsen data. He me is actually it may actually have been higher than what it showed how are the inventories on that segment.
Inventory on the trade in the cooking and baking, we're still at a 90% in stock level.
If you recall, we had some Q for shipping challenges that we've talked about.
Well, it's recovered in Q1, but the in stock levels are still way below acceptable levels of hovering at 90%, So theres more replenishment to come and in Beijing as well as all the other.
Segments.
Turning now to tableware.
There were two quarters, where we had challenges last year Q2 was the biggest.
We didn't repeat memorial day.
Fourth of July there were fewer social gatherings.
The same occurred in Q4 last year, where their holiday gatherings, primarily in the December timeframe were much smaller.
We did see some lower sales versus prior year and tableware in Q4, and we expect those to recover adding on them.
The comments from Mark about the Q4 holiday celebrations for wells in coated products as well.
That's encouraging for thank you Lance.
I N G.
Yes, so Andrea on when you look at the overall Cogs materials at just under two thirds of two third of our Cogs with about 45 on those points coming from commodities.
Polyethylene and aluminum are clearly our largest followed pipe polystyrene. So beyond that obviously the Cogs you know the bigger parts of it are conversion in logistics.
We've already kind of talked about our plans to offset that material component and we're well on our way to sort of offsetting that through the second round of pricing, which is already in flight.
And then as appropriately the third round that is currently being planned.
And Michael just just on on that we heard some of your peers talk about like an outlook that actually can ease off potentially by the fall or even before that as Dave.
Especially that RASM polyethylene and polypropylene could potentially kind of ease off there what are you embedding in your guide that they analyzed by Dan Yeah.
No. So similar it's probably similar.
<unk> has informed by current commodity indices.
But you know I'm not going to say that you know our indices or crystal ball, there's always some variability around that and we're prepared to respond accordingly, but based upon the industry right now is a downward slope.
We continue throughout the rest of the year.
Great and and on the innovation or the cost restructuring their evolution.
And now to look for things here.
Well, we typically don't get into the specifics around what evolution I would say that you know a revolution.
Initiatives are tracking incredibly well.
We had a we had a record year in that space last year, and we anticipate that will will will be beyond that in this year. So we continue to drive in.
Elevate our revolution initiatives and we anticipate that's going to be significantly higher than last year, not significantly but size would be higher than last year.
And if I can squeeze the last one on.
On the on the cost pressures that you yeah, I'm sorry on the cost pressure from from COVID-19 is that any opportunity to just.
But those pressures you know tomorrow, but its control now or it's true kind of elevated.
But it will clearly the COVID-19 cost pressures were more intense you know last year, we've seen that come down and is primarily focused on the PP&E now and you know, we we've kind of baked that into our overall guide as you know as we move throughout the year and in vaccines.
Cole.
Thanks, Mike I'll pass it on.
Thank you. Our next question comes from the line of Bill Chappell with true Securities. Please proceed with your question.
Thanks, Good morning.
They just wanted to follow up on a question.
The other is on pricing, but I think you said in the prepared remarks, you look the price for margin to cover margin, which I think is is in your kind of historical policy, but not necessarily what other companies do a lot of this price for the dollar cost and you're actually pricing to recover margin. So yes.
Do you expect your competitors to do the same Ah is this any issue when youre dealing with the retailers and did I get that correct are you pricing to recover margin or are you just price new covered dollar cost.
We're pricing bill to cover margin dollars.
So I hope that's clear.
So there would be a long term negative impact on margin.
For the math works on that on day, one of the math works right because of the higher numerator.
Okay, and you don't see.
Any competitors.
Doing lesser pricing or slower pricing than you are do you expect everybody kind of move in the same fashion.
It is it is a very dynamic situation that changes by.
Category it changes by channel and it's something that we manage that that dynamic level. So that there's no one answer to that question.
Got it.
And I can go.
Okay I'll wait for the.
The question.
No no no no. Please expand on I was going to ask a different question.
So we.
We are implementing.
Round of price increases in Q2 and those are in place.
A second.
Increase for hefty waste bags.
Not included in the Q2 round of increases.
And you know if resident stays at this level versus the indices significant increases are going to be required.
No absolutely on my second question is just maybe tell me how you're.
Planning kind of for the foodservice for the away from home boom over the next few months I mean, clearly stuff like New York, and New Jersey opening completely up in two weeks or other I mean, it's going on I would imagine put a strain on on the foodservice and supply similar to kind of how lockdowns, where a year ago for the at home so on.
Are you prepared or are you preparing for or do you expect kind of a normal ramp.
Well, we are seeing elevated.
Demand for some specific products on the tableware business, which we are meeting that demand for <unk>.
Watching that elevation closely.
Currently we are able to achieve it but as things continue to open up that could be a challenge from a pure capacity standpoint for a period of time until things normalize.
Okay, Great I'll pass it on thanks.
Yeah.
Thank you. Our next question comes from the line of Rob <unk> with Evercore ISI. Please proceed with your question.
Great. Thank you very much I appreciate it so a couple of questions. First you guys are category captains I think.
70% of your volume can you talk a little bit about how your discussions with retailers on the category.
Evolved apart from.
Pricing, which you discussed already today, but how are they thinking about shelf space private label.
Do they agree with you that demand is likely to be at an elevated level going forward.
So just kind of interested in all of that and then and then second if you could talk a little bit more about innovation and demand in their cooking and baking.
Sector. Thank you.
Sure from from the feedback we're getting from retailers relative to the category. It's a very dynamic environment right now, but they do believe as we do that the categories are going to continue to be elevated over the long period of time and they were planning accordingly.
We did see some migration to higher levels of brands in the categories.
During the pandemic and we do expect some of that to moderate as we go forward, but as I've talked about many times. These.
These categories have been very stable between the brand and store brands balance it didnt change significantly during the pandemic and we'd all ex and they don't expect it to change.
Post pandemic from that balance standpoint.
And the overall deal.
Overall conversations with the retailers are from a shelf assortment standpoint is skewing towards innovation looking for opportunities to add shelf space for new products and continued validation of those new products.
Which leads to your second question, which was innovation on the cooking and baking products.
We have staged a significant number of changes on that.
And then on those product lines as I indicated in my opening remarks.
100% recycled aluminum foil Reynolds wrap which is at a price point that is consistent on line price with the other products in the category. So.
Fewer feet, but no no significant.
Premium any longer because we've got a different supply source.
We've changed the price point on non stick foil to get more users into the category.
We've changed our packaging on Reynolds wrap to make it easier to use and easier to shop. The category was the ex graphics on the package.
We've we've also introduced.
For products for <unk>.
Coking, which includes butcher paper, which is used for.
Smoking a grilling.
And we continue to innovate across the cooking and baking product line.
Terrific. Thank you very much.
Yeah.
Okay.
Thank you. Our next question comes from the line of Mark Astrachan with me from please proceed with your question.
Thanks, and good morning, everyone.
I guess just first maybe a follow up to the last question is your expectation that the private label moves pricing. Similarly, you given that a year ago brands tended to do a little bit better than private label.
Okay.
Mark could you repeat the question I just didn't quite catch all of it I think it broke up.
Yeah, sorry about that.
Basically just asking whether you expect private label to move.
Pricing similarly to your brands given what you said about the importance of.
Brands outperforming private label last year.
Yeah. So we've seen evidence of private label in these categories moving consistently there.
As you know, we're a big supplier of private label across cities. These categories on the cost pressures that all of the suppliers are seeing these categories for this thing and there are significant if you follow the polyethylene on aluminum curves you know that those two cost inputs for sure.
Of almost doubled from their low point of last year.
Okay.
Got it okay.
Secondly.
Could you just remind how much.
Of the price increases historically are given back if if any as we kind of try to think about.
Longer term sustainability of the benefit of the pricing that you are talking about this year.
Yeah.
This is gonna be a significant increase compared to historically, but generally I will say that it's it's not all give them back with it there is.
There is a lot that we get back on its partially related to overall market conditions.
It is generally as you look through the history of these commodity cycles, you'll see that margin increase after the commodity cycles are stabilized.
Got it okay. Thank you.
Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.
Great. Thanks, good morning.
I was curious to just continue the conversation on pricing, but and I guess two things on that one is that in the Reynolds cooking and baking business in the past you've talked about key thresholds on pricing.
Where elasticity kind of kicks in I'm going to test my memory, but it was like about for 99, maybe anything on it so.
I'm just curious about as you the degree to which one pricing plans in that division and for foil in particular might take you above those thresholds level for that the elasticity notwithstanding your comments on changing elasticity models would be more relevant.
And then on the waste <unk> storage and particularly the branded side of the business.
Just curious about.
How you are monitoring or what you're anticipating in terms of price gap to branded.
Because at least I think all of US are historic knowledge of the branded side of that business with your public competitor.
Three price increases wouldn't be typical right at kind of all goes on at once so trying to understand maybe.
How much for the three rounds of pricing.
There is more to the private label side of the house.
Versus branded and how to think about price gaps and had the debate on what you're monitoring that on the branded side of the business. Thanks.
Okay. Thanks, good memory on cooking and baking.
This threshold by a $1 $399.
Hi.
But youre right that that was the key threshold pre pandemic.
Our initial indications of the elasticity models a day they've changed post pandemic, Canada on inflationary environment across all grocery not just our categories.
So it is somewhat on no. There's no question that you're on.
We're crossing the $3 99 price thresholds, but evidence suggests that that old threshold no longer holds.
We don't have complete data on that yet so some of this will be tested real time.
However, there's no choice as I mentioned, a moment ago aluminum prices.
Have almost doubled from where they were in the low point in 2020.
And so in order to ensure continued.
<unk> of our business we need to.
Price Tomorrow.
Commodity costs, and we won't be alone.
The the commodity costs will be in place for the rest of the category too.
And as consumption has gone up and new.
Users are coming on the categories, we're confident the consumption levels will stay high.
But time will tell.
And we'll obviously be closely watching that.
On waste for storage and particular hefty waste bag price gaps, we did take a price increase in Q1 and as those of you that monitor the.
Scanning data closely saw that the price gaps closed.
We are implementing a second price increase as I said, a moment ago across the majority of our products in Q2.
We are now planning a second increase for hefty waste bags, which was not included in that Q2 round.
And so we will continue to move hefty pricing up as the commodity costs have gone up significantly.
Okay and just to clarify then you said it was most of your product line in Cupid hefty was not a part of that system at that three key planning for a hefty would effectively.
Probably get to two rounds of pricing not three.
After he is gone up one we expect to get another one in.
In Q2, yet.
But it probably though I mean, it will be announced in Q2 for Q3 implementation for Q3, Okay. Perfect. Thank you so much I make sure I got that.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Mitchell for any final comments.
Yeah.
Thank you operator, and thank you everyone for your questions.
Really value your interest and your participation.
Most of all we appreciate your time.
Our revenue is growing and we expect <unk> to be even stronger and revenue growth this year driven by pricing consumer consumption.
Innovation and our increased supply chain capabilities on.
Also want to thank our employees for continuing to follow the prevention measures putting safety first as we grow our business during this exceptional time.
Stay well stay safe and hope to do so thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.