Q1 2022 Reynolds Consumer Products Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Reynolds consumer Products' first quarter 2022 earnings call.
At this time, all participants are in listen only mode.
After the speaker presentation there'll be a question and answer session.
If anyone should require I've heard assistance during the conference. Please press star zero from your telephone keypad.
Please note that today's call is being recorded.
I will now hand, the conference over to your Speaker today Mark Schwartzberg. Thank you. Please go ahead.
Good morning, and thank you for joining us for Reynolds consumer Products' first quarter 2022 earnings conference call on the call today are Lance Mitchell, President and Chief Executive Officer, and Michael Graham Chief Financial Officer for our agenda today.
We'll focus on market conditions, and our fundamentals and Michael will review our quarter and outlook.
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 expectations and 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 in any forward looking statements made today. Please.
Please note management's remarks today will focus on non-GAAP or adjusted financial measures.
Conciliation of GAAP measures to non-GAAP financial measures is available in the earnings release.
Listed under the Investor Relations heading on our website at Reynolds consumer products Dotcoms.
The company has also prepared a few presentation slides and additional supplemental financial information, which are posted on reynolds' website under the Investor relations setting.
This call is being webcast and an archive of it will also be available on the site.
While we would like to answer all your questions. During the Q&A 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.
Thanks Mark.
We started the year with another solid quarter and a very dynamic environment marked by inflation on top of the levels anticipated in our guide of early February .
We delivered another quarter in line with our expectations.
Some of the highlights are.
Our record first quarter of that revenues.
Strong volume growth in our hefty waste in storage and hefty tableware businesses.
Additional share gains in multiple cooking and baking categories waste bags, disposable tableware and private label food bags.
Additional pricing and cost savings and our plan to restore pre pandemic profitability and improve staffing service and retailer in stocks.
Turning to our main drivers of growth pricing consumer demand innovation and manufacturing and supply chain capabilities. It's worth remembering that our portfolio is well positioned not only for shifts in the household mix of brands and store brands, but also for increasing activity outside of the home.
In the area of pricing inflation has increased since our last earnings call.
Our response has been disciplined and quick with additional pricing implemented across our categories.
And in hand, with those increases we've seen an increase in elasticity in some of our categories, particularly for foil, but the degree berries and remains below pre pandemic levels.
Michael will review, our guide and our guide builds in this increase in our elasticity assumptions.
Turning to consumer demand.
In foil the combination of elasticity and reopening as a headwind in.
And one we are addressing through a series of measures, including higher trade and advertising.
It's important also note that we estimate that more than half of the Reynolds cooking and baking volume decline in the quarter was due to timing of retailer inventory replenishment.
And many of our other categories, including parts of paper waste bags plastic party Cubs consumption continues growing at faster than the average annual rates than it did prior to the pandemic.
Those are trends that you'll see in the syndicated data and it's evident in our research.
According to a late April report from cancel our consumers are eating out less often to compensate for inflation.
And then our latest Harris survey, which was also completed in late April .
We found what we expected for foil and the usage of many of our categories remains well above pre pandemic rates.
As for our performance in tracked channels RCP brand of dollar share and volume share in waste bags disposable tableware slow cooker liners oven bags plastic wrap and bakeware is up versus year ago levels.
And we're seeing RCP share increase in multiple e-commerce categories too.
The third driver of our growth is innovation.
Reynolds wrap everyday nonstick foil hefty fabulous, so waste bags hefty ego saved disposable tableware remains standouts recruiting new users and gaining distribution.
Reynolds kitchens air Fryer liners, a new ft Fabulous, so sent in waste bags and private label standard fill pressed to close food bags are off to strong starts.
And our new product pipeline is robust with upcoming introductions, including Reynolds kitchens, compostable wax paper and a number of new branded products from hefty waste in storage and hefty tableware.
And finally hefty energy bag is growing.
Strongly in existing geographies and we planned expansion of the program to additional municipalities later this year.
Our fourth growth driver is manufacturing and supply chain capabilities.
As I said in my opening remarks retailer in stocks of our products have improved across our categories, demonstrating our commitment to restoring service to our customers pre pandemic standards.
Before I pass the call over to Michael I'd like to leave you with the following.
We began the year with stabilizing commodity cost, but also new the environment would be dynamic.
Inflation has accelerated since early February and navigating through these times remains challenging.
We're leading our categories and executing with excellence in our mission of simplifying daily life. So consumers can enjoy what matters most.
<unk> confidence in our people and see tremendous potential for Reynolds consumer products with that over to you Michael.
Thanks, Lance and good morning, everyone.
To briefly review our first quarter results and then turn to our outlook net revenues in the first quarter were $845 million, an increase of 12% on top of the record first quarter net revenues of $757 million in 2021, primarily driven by price increases adjusted EBIT for the first quarter was.
$112 million down 20% versus last year's first quarter, adjusted EBIT of $140 million, driven by higher material manufacturing logistics and advertising costs as well as lower volume, which was significantly offset by price increases adjusts.
Adjusted earnings per share for the quarter was 26 the details of our segment performance are in the press release and our 10-Q, However, I do want to cover a few highlights here.
Volume grew 6% in hefty waste storage driven by strong demand and easing of staffing and logistics related challenges, Brian grew 10% in hefty tableware, driven by strength across our hefty and store brand portfolio.
Brian declined, 14% and Reynolds cooking and baking with more than half of the decline attributable to timing of retailer inventory replenishment and the rest related to a combination of lower consumption and lower re rosales Presto products volume declined 3%.
And in terms of liquidity working capital was a use of cash in the quarter and capital spending was $28 million. This is a business that generates strong cash flows and particularly strong cash flows when commodity costs are stable or declining a number of initiatives targeting working capital improvements are also underway.
Turning to our outlook for the second quarter of fiscal 2022, we expect net revenues to grow 6% to 8% or $873 million in the prior year adjusted EBIT to be in the range of $110 million to $120 million adjusted EPS to be in the range of 23 to 27.
<unk> per share.
For the fiscal year 2022.
While we are not changing our previously disclosed guidance range. We are updating our expected performance within previously stated ranges as follows net revenues to be in the high end of the range of 9% to 12% on $3.556 billion in 2021, adjusted EBITDA to be near the low.
End of the range of $615 million to $655 million adjusted EPS to be the near the low end of the range of $1 56 to $1 70 per share net debt to be approximately one $9 billion to $2.1 billion at December 31, 2022.
Land said, we do expect a pickup in elasticity, particularly in foil but that elasticity has remained below pre pandemic levels.
Re openings were also a factor in the first quarter, which we are monitoring closely.
We expect pricing to drive revenue growth and volume to be down low single digits for their year, including the first quarter impact from timing of retailer inventory replenishment. We believe retailer inventories are better aligned to consumer demand over the remainder of the year.
We assumed rates for key commodities remained stable by comparison to the end of April levels and estimate total additional cost pressures of approximately $450 million for the year.
$50 million versus nearly $400 million in early February .
We estimate depreciation and amortization of approximately $120 million for the year interest expense of approximately $60 million for the year and an effective tax rate of approximately 25% for the year, we expect capital spending of 150 million to $170 million for the year, including continuing to invest.
And that's in automation and other revolution programs as it relates to phasing you will recall that when we report our results in early February we expected previously implemented price increases in prior year price comparisons to drive sequentially slower year on year top line growth as the year progress.
Yes.
But as you know we have experienced additional cost increases since early February and implemented another round of price increases for the purposes of offsetting these costs.
These changes resulted in a shift in our expectations to higher revenue growth in the second half than in the first half of the year. While also moving expected year over year earnings growth into the second half of the year.
Now before I turn the call back over to Mark and your questions I'd like to leave you with the following our competitive position is strong our share is growing in most of our categories and we are unwavering in our commitment to restoring pre pandemic profitability. We are investing in 2022 and the long term.
We are working on multiple working capital initiatives to help mitigate the cash flow pressures, we have seen from steep increases in commodity costs and our capital allocation priorities are unchanged.
Invest to strengthen and extend our competitive advantage and earnings potential deleverage with a target ratio of two to two five times EBITDA.
Return excess cash to shareholders via dividends and Opportunistically pursue strategic bolt on acquisitions with that I will hand, the call back over to you Mark. Thanks.
Thanks, Michael as I turn it over to the operator for 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.
Thank you.
If you'd like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
So let me address questions from as many participants as possible. We ask you. Please limit yourself to one question one follow up question.
You may recall for re queue for additional questions and that'd be taken as time allows.
One moment. Please so we assemble the queue.
Thank you and our first question comes from the line of Camille Gosh, well with credit Suisse. Please proceed with your questions.
Okay.
Hi, can you talk maybe a little bit about cooking and baking and maybe some of the components of what's behind some of that decline.
Thank you Neal this is lance.
Well last quarter.
Yes, the first quarter of household oil category consumption.
Was down eight was that the remaining shortfall of our Q1 volume.
Driven by inventory adjustments at retail or so approximately.
Half was event driven.
Some consumer travelling.
The consumer trends of the household wealth category decline was driven by a lot of numerous factors including changes.
These occasions.
Yes to a smaller footages.
Shifts from heavy duty to everyday.
Well.
And some trade down from brand to private label.
So.
Or even the category changes.
Yeah.
And our guidance does contemplate why guide five in Q2, and then similar consumer consumption.
In the second half.
We are increasing our investments.
And higher trade promotions and advertising.
To encourage them to use occasion, and it does price points to drive growth and we're also accelerating our revolution initiatives.
They contribute to earnings.
Got it can I just follow up on maybe one of those comments on inventory retail inventory is it that retailers are now starting to bring it in perhaps maybe more than planned or is there something else going on just to make sure I understand.
Good morning Tobey.
This is Marc and good morning, everyone.
Retailer inventory adjustments, where as you heard last day, what I'll call.
So we worked through in the quarter and of course, we built that into our guidance.
When you look forward and see things that are dying to say something.
A better match between shipments thing.
And consumer.
Consumer take away that headwinds won't be to find a headwind it was in the first quarter.
Got it perfect. Thank you.
Our next question is from the line of Nik Modi with RBC capital markets. Please proceed with your questions.
Yeah. Thank you good morning, everyone. Lance I was hoping maybe you can give a little bit more detail on category growth across the portfolio and then just kind of within that context. How your shares are progressing and I'm more interested in just trying to understand.
Price gap situations right now.
How you feel about them at this at this moment given all the pricing. Thanks.
Yes, two part question so let me handle the.
Sure.
We're doing extremely well across the vast majority of our <unk>.
Product line to the category.
Across our portfolio our branches gain dollar added huge here and that lease was that in the categories in which we operate.
So the vast majority of the products in a number of categories. We continued to see category volumes continue to grow faster than our average annual rate and we saw fire.
And cooking and baking, we're seeing three year CAGR regime.
Well mid single digits.
10% to 11% for example parts of paper so.
The Cookie based segment of household wealth is a challenge.
Quarter.
Waste in storage, we're seeing three year volume CAGR.
Basketball is back in.
And a table wherever seeing behaviors and by 6% from Classic Party.
So our healthy business units continue to benefit from a combination of category demand.
And our continued share growth.
Continued significant potential for continued growth.
On the price gap standpoint across the portfolio.
Satisfy those share gains.
We're pleased with price gaps.
So household.
And as I mentioned, a moment ago on the first question.
We're changing our trade strategy to adjust price points and price gaps to.
Across the portfolio.
Thank you.
Okay.
Our next question is from the line of Rob on staying with Evercore. Please proceed with your questions.
Great. Thank you and and a couple of questions. One I want to follow up on the share question, a little bit more detail.
Obviously youre doing very well is is there any way to kind of dissect you know your market share gains are between how much is driven by innovation. How much is driven by you know greater availability displays anything along those.
And then is it getting reflected in more shelf space or anything that we can point to to suggest that these share gains can be sustainable and competitive reactions. So that's that's kind of the first question and then it it it bleeds into the second question, a little bit which is kind of what what are your your your second quarter.
Volume assumptions and does that those assumptions assume a continued share gains or losses, you know how do you see that developing thank you.
Well I'll answer the first part the.
The second part as it relates to the second quarter outlook as it relates to our share gains across the portfolio first of all two points of our revenue growth in the quarter came from innovations and those deferred across all four segments.
Well it was pretty balanced across all four of our business segments.
Yes.
Okay and then.
In my opening remarks talked about several of those products.
That's right.
The balance of the game has come from distribution as well as just consumer habits.
So.
Consumer habits are continuing to stay home more frequently you know people are going back to the office, but not five days a week people are not going out to eat as often because of the high cost of eating out and sometimes surface related issues. So our research tells us that.
Well people are still spending time at home and that drives use occasions.
Our products.
So with that Mike Q2, yes. So on the Q2 question, we've taken a pretty prudent approach to our guide we expect RCP volume to be down mid to high single digits in the quarter driven by Reynolds consumer.
Cooking and basically I'm looking for it we expect better alignment between shipments and household consumption now that retailer inventories that jumped that mark just spoke to that a bit and in foil.
Declines in household consumption continued down at similar rates to the estimated 7% decline that you saw in the first quarter.
We are also increasing trade promotion to advertise and drive growth.
Yes.
Okay.
Thank you.
Thank you. Our next question is from the line of Bill Chappell with true Securities. Please proceed with your question.
Hey, Good morning, guys. This is Steven Lingo on for Bill Chappell would you guys be able to kind of break down the $50 million increase in costs can you guys kind of put.
Put it into like buckets of which is impacting it the most.
I bought your saying thank you.
Okay.
This quarter 134.
That's the driver for that.
Okay.
Yeah.
So when.
I think about that cost of materials of approximately two thirds.
On the Cogs.
And then so thats, probably about 45 points of those from commodity.
One of them in polyethylene.
Clearly our largest followed by polystyrene the other resin so on annualized basis about 5% increase in commodities.
How has the following impacts aluminum has about a $20 million.
Polyethylene about $25 million to $30 million in polystyrene about 15 million.
Yeah.
Yeah.
Great. Thank you very much.
Yes.
Thank you. The next question is from the line of.
Andrea Teixeira with Jpmorgan. Please proceed with your questions.
Good morning. So my question is on the cost savings to mitigate that 450 I think the resolution.
It's probably part of that and if you can update us on on that.
And my second one is just a clarification on the shipments against retailing inventory is that mostly on the cooking and baking segment or you're seeing across the board and just to clarify also just the timing you expect and what's embedded in your second quarter is just in the second quarter and then we should.
It seemed that you know.
Earlier in the second half of the year. Thank you.
Yeah I'll answer the second part of that question first.
The.
Retailer inventory was exclusively in household.
You see that in any of our other products and categories.
So that product line.
Got it.
There.
We are expecting there to be some additional.
Adjustments to retailer inventory in the second quarter, and then it'll be figured out.
And finally, the second half.
There was a lot of inquiries.
And there's a high dollar amount than before they are.
Carefully managing the dollars.
They're carrying at retail as well.
Okay.
So I'll take the first part of the vessels yes.
Yes, so as it relates to evolution and you guys you probably recall this we've talked about this a bit in the last quarter. So we set out to deliver a little more than two points of margin improvements through revolution cost savings in 2021.
So that's a little more than about $70 billion and we beat that target.
Planning to deliver.
Incremental savings that range again this year. So that's I guess, what you could expect to see from a revolution.
Now I need my advice is that sorry, I couldnt hear it 77, she made them right.
Yeah.
<unk>.
Broadly.
And I would also add and we've said this in Michaels prepared remarks, we did take another price increase because of commodity cost increases.
In the first quarter that are being implemented in the second quarter and thats across all four segments.
It is typically higher.
Tableware and rentals, where we saw the.
A bigger basket.
But we did take pricing at all four sectors.
Thank you both state I'll pass it on.
Okay.
Thank you.
The next question is from the line of Lauren Lieberman with Barclays. Please proceed with your questions.
Great. Thanks, good morning.
The incremental pricing is actually exactly what I wanted to ask about so.
In all categories, it's been announced that will be implemented during second quarter I guess I was curious.
Early late in the in the quarter, what are we talking about and what's your sense for how this aligns with what competitors are doing.
But my I can preempt my follow up I think particularly in the in the truck segment.
Curious where things like now in terms of.
And you and competitors kind of being in line I know that you had moved early and you were sort of ahead of the game on pricing.
But I was curious where that sits now and how you would describe price gap.
I mean, you and I'm glad in particular versus where they were prior to the pandemic. Thank you.
Well the pricing that we've taken is across the board. It is a very good timing.
The cooking and baking increase and May actually was effective may seven.
The tableware and the hefty price increases and a minor one in cross sell.
Occurs in June .
The estimated waste storage increase.
Hi.
It was.
Consistent with what we're seeing from competitors.
<unk> and <unk>.
Yeah.
Okay, Great and then what about the price gaps dynamic now versus.
You know, where you described things where our pre pandemic have they caught up.
Yes.
We're pleased with the price gaps or Ross or.
Our categories, we will be assessing the household well at this point in time, we've got to make some adjustments there has to be slider food banks, we're seeing some trade down from the slider food bags segment that probably close to where we're looking at sort of adjustment there primarily to Craig who will chair the price yes, there are.
Satisfactory to ensure continued growth and we are evaluating another perhaps the waist bag price increase.
That would be effective in the next several months.
Okay, nor is it what.
Alrighty.
Yes that would be an addition.
Okay.
Laurie This is mark I wanted to delve in Atlanta.
It pertains to your question, Michael just answer to that.
This is the level of cost increase of course, we got its import 50 for the year versus 400 in our prior guide.
And we just talk through the pricing actions. We are undertaking that incremental 50 is a function of higher domestic and import freight costs.
The increased commodity costs, particularly in the area of the resin.
Because as you've probably noticed aluminum costs have started coming down.
And then there's another $10 million or so in the area of increased manufacturing a third party supplier costs for that.
No.
That's the origin, if you will.
Incremental price increases last year.
Okay great.
Great. Thank you.
Thank you Andrew.
To ask a question today, you May press star one from your telephone keypad.
Let me address as many questions as possible. We ask you. Please limit yourself to one question and one follow up questions. You may re queue for additional questions as time allows.
Our next question will be coming from the line of Peter Grom with UBS. Please proceed with your questions.
Hey, good morning, everyone I hope Youre doing well so I just wanted to ask about gross margin both for the year and how we should think about Beijing.
Maybe just to start I know Michael you previously expected gross margin to be up 100 basis points year over year for 2022.
<unk> seem to be a bit tougher and I guess the implied EBITDA guidance in Q2 seems to embed another challenging quarter. So just any thoughts on the full year outlook and then maybe specifically how we should think about Q2 and the back half of the year.
Yes, so just to reiterate so if you think about our gross margins.
We were challenged in Q1 right.
The lion's share of that was really driven by commodities, it's about 11 points.
They had a little bit about the denominator changed and we've talked about the map in the past that's worth about four points on logistics and other manufacturing cost is about two points and mix and scale is another two points. So.
That was all.
Offset to some degree by a pricing action. So so net net thats good.
Overall, as we look forward and we look forward, obviously, we've taken more pricing.
We do see commodity costs start to taper off and so a combination of pricing and commodity costs starting to taper off.
Set us up for our benefit.
The overall manufacturing logistic cost that would anticipate there's going to be pretty consistent.
So when I think about overall margins I think that youll see a little a little bit stronger.
Result, going forward, primarily given the fact that pricing is going to continue where you see commodity costs.
It taper off a bit.
Okay. That's helpful. And then I just wanted to ask about the guidance, particularly kind of what's implied.
In the back half of the year and just I guess.
I know, you're taking any incremental pricing.
6% to 8% growth in Q2, it just seems to imply that you expect mid teens top line growth.
In the back half of the year to kind of hit the high end of your initial guidance and so it just seems like a lot of <unk>.
Pricing on top of the low double digits, you're cycling a year ago. So I'm just trying to understand how comfortable are you that this level of pricing when you're thinking I'm like a multiyear period that you will still see elasticities about pre pandemic levels.
Okay.
So let me just talk to you about in a couple of components right.
One is you know in the second half, we do expect some of volume acceleration.
And this is driven by the increased trade spend increasing advertising and strong innovation trends.
You'll also recall the company volumes are flat in Q3 of 2021 take we're posting a minus 4% which of course is our business.
Our business segment is showing great strength, so I mean.
In addition to.
Some of the other actions that I do want you to take into consideration some of the volume accelerations of weeks expected second but to add to that we have built in some expectation of elasticities in the both the second quarter as well as the full year.
Because of the magnitude of some of the pricing.
Got it. Thank you so much I'll pass it on.
Our next question is from the line of Mark Astrachan with Stifel. Please proceed with your questions.
Thanks, and good morning, everyone.
Wanted to ask about.
Unsurprisingly pricing in commodities so.
If if prices kind of stay where they are from a commodity standpoint could you maybe talk a bit about how historically you've.
Either giving back price or kind of.
Promoted to give some of that back I know you talked a bit about the increased trade spending is that sort of related to that or is it just more on stimulation of volume and then somewhat related to that given kind of where we are more.
More commodity pressure, but more pricing do you still think it's reasonable to get back to pre pandemic gross profit dollars in 'twenty three.
I'll take the first part of that question then Michael can talk about the gross.
Gross margin dollars.
Part of the equation.
From a pricing standpoint, when pricing goes up when commodities come down historically, we had been.
The margin often recover margins across our portfolio.
We do use that opportunity correct price points and do that through not just.
Individual promotions on a specified period of time, but also by install temporary <unk>, which are more permanent type price reductions.
Make sure you get the price points right and the gaps right across the categories and that's what I was referring to earlier when I talked about what we were planning to do with the household category to adjust pricing not just through promotional.
To ensure that we're getting the right price points.
Aluminum has gone up to almost $2 a pound in March with sort of that at one point it actually crossed laws.
Variety of $1 67.
So we have seen a 30% type of reduction in aluminum in Alaska.
30, plus days it presents an opportunity for us as we go forward now that it's the largest off of early use that's incorrect in place.
And Michael you want to talk about gross margin dollars, yes, we've talked about this before and we've talked about this in context of what it was during our pre pandemic profitability.
Just kind of give you a sort of understanding we expect gross profit you and we and all of US expect gross profit dollars grow in line with born all else being equal.
To illustrate this.
For 2022, if we grow along 2019 gross profit dollars.
By $888 million so in other words, 8% and that's basically what our volumes kind of change you would expect an implied a gross profit of about 900.
So as we look forward.
There's three things that we are really focused on reducing our reliance on higher cost third party suppliers.
This is a result of staffing challenges as well as logistics chain. So that's our focus areas for us going forward.
We continue to make improvement.
Towards our labor challenges and we've invested heavily in this overall space in terms of the wage rates training really doing a deep dive across all of our locations.
Understand understanding why people are changing in and turning over at the rates, we have and we've made some tremendous steps in that regard and we feel very comfortable around the progress and so that's going to allow us to continue.
Continue to get product out the door in fishing.
The other big thing that you know that probably won't happen in this year, but hopefully we'll see some early signs of that is the competitive pricing.
Away from storage space. So obviously, we know from a gross margin standpoint, we haven't gotten full recovery.
From a pricing standpoint in that overall space.
From competition to react appropriately to the overall increases.
Think there's an opportunity here that we will see some additional recovery in gross margins as well.
Great. Thank you guys.
As a reminder to ask a question today. Please press star one from your telephone keypad.
And please limit yourself to one question one follow up question re queue for any additional questions. Thank you.
We'll pause a moment to assemble the queue.
Our next question is a follow up from the line of Andrea to share it with J P. Morgan. Please proceed with your question.
Thank you for taking my follow up on Michael you mentioned, a little bit of the that aluminum cost and then the 20% that you're seeing sequentially and potentially coming back I just wanted to clarify that profit dollars.
I think you mentioned something like 50, or I don't know shelf were heard it correctly.
If you can number one.
Kind of give us an idea of how youre contracted for aluminum.
For the rest of the year and potentially into 2023.
If you're being opportunistic about this time reduction are waiting a bit more to see how it lands and then on on the profitability. There just wanted to clarify you said you wanted to go back to that pre pandemic profitability and what is the timeframe.
Well you know if we see let me start with the second part of your question, if we see commodity costs.
We could very well see this happening as early as 2023, I mean, but that that requires commodity costs to abate and you know in the deflationary pressures to come down significantly.
So that's the second part of your question.
And I want to make sure I understand the first part because I.
Disconnected a little bit here on that so can you help me on your first part of your question.
Yeah.
It was just the.
How youre seeing.
Like came out that was related to alumina anyways, but I was just trying to see how youre contracted into the 2023.
Costs for now because of the aluminum decline.
Well, you know I mean aluminum prices and rates I mean that that's fully.
That that is not something that we're really locked in from a contractual basis. It's market based so those nominal rates come down we get the benefit of all of that recognizing.
Recognizing the fact that there is a flow through of inventory and then we do have some.
The amount of inventory so as those rates to come down as we work through our inventory position youll start to see the benefits of that.
For modeling perspective, and I think you probably know aluminum rates have come down.
Mhm, Okay. That's fair thank you.
Thank you our final question will be coming from the line of Rob Hottenstein with Evercore. Please proceed with your questions.
Oh, Yeah I was just wondering if you could talk a little bit about the dynamic that is emerging on the aluminum side.
And and better understand because you don't really have any branded competitors.
So this is being driven presumably.
Uh Huh bye bye the retailers and you know maybe you could talk a little bit about your discussions with retailers on this point.
Are they changing how they look at the category or is it just something that they just like everybody else is just having a really hard time dealing with you know the kind of incredible volatility in the prices and and you know maybe they they have an adjusted in a in a rational way or just just any any color around how the.
Lorries developing would be helpful. Thank you.
Yeah, it's been a very dynamic environment.
Particularly the last year across the category and it varies by channel.
So.
Yes, we have worked on this by retailer by retailer basis and.
We're seeing that the retailers.
Working through it with US we are the only brand in the category and as I described and I think the first question that came through.
There's a lot of consumer behavior changes that are occurring because of the higher the higher prices and the cost of trading.
Trading down to lower Footages trading from heavy duty to everyday oil gauges and so working through all those dynamic changes with the retailers and changing price points is what we're partnering with them on as well as ensuring we get the right price gets to the private label.
So the best I can describe it as they're working with us in a partnership way and it's a very dynamic environment.
Thank you.
Thank you.
At this time of for each gender a question and answer session I'll now turn the call over to Lance Mitchell for closing remarks.
Thank you for your questions and we appreciate your time this morning.
I'll remind you that our business is strong.
We're growing share across 70% of our portfolio.
And I want to thank our employees and our retail partners for their contributions and their dedication during these very challenging times.
Thank you.
This.
Today's conference you may disconnect your lines at this time, thank you for your participation.