Q2 2023 Reynolds Consumer Products Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the Reynolds consumer Products' second quarter 2023 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 operator assistance. Please press star zero on your telephone keypad.
Please be advised that today's call is being recorded.
I would now like to hand, the conference over to your speaker today Mark Schwartzberg.
Thank you and please go ahead.
Thank you operator, good morning, everyone and thank you for joining us on Reynolds consumer Products' second quarter 2023 earnings Conference call. Please note that this call is being recorded and webcast on the Investor Relations section of our corporate website at Reynolds consumer products Dot com our.
Our earnings press release and accompanying presentation slides are also available on the site.
On the call today are Lance Mitchell, our President and Chief Executive Officer, and Michael Graham, Our Chief Financial Officer, Brian .
For our call Lance will focus his remarks on our second quarter performance.
Progress on the Reynolds cooking and baking recovery plan and what we are doing to drive results across our business, Michael will review, our second quarter financials, and our outlook for the third quarter and the full year.
Following prepared remarks, we will open the call for questions.
Before we begin I would like to provide a few reminders first this mornings discussion may contain forward looking statements based on current expectations and beliefs.
These statements are subject to risks uncertainties and changes in circumstances that could cause actual results and outcomes to differ materially from those described today.
Please refer to our risk factors section in our SEC filings, including in our annual report on Form 10-K, and our quarterly report on Form 10-Q.
Please note that the company does not intend to update or alter these forward looking statements to reflect events or circumstances arising after the call.
Second during today's call, we will refer to certain non-GAAP or adjusted financial measures.
Reconciliations of these GAAP to non-GAAP financial measures are available in our earnings press release Investor presentation deck and Form 10-Q.
Copies of which can be found on the Investor Relations section of our site.
Now I'd like to turn the call over to Atlanta.
Thank you Mark and good morning, everyone.
As we enter the second half of our fiscal year I'm exceptionally pleased with our second quarter results, we are well positioned to deliver significantly improved earnings in fiscal year 2023 and continued future growth.
We began 2023 with profitability restored at three of our four businesses as well as a comprehensive plan to recover the profitability in our Reynolds cooking and baking business by the end of the second quarter.
We were very effective executing each businesses plants in the first quarter and again in the second quarter, including Reynolds cooking and baking ongoing operational improvement initiatives.
We also gained share in household foil and other categories.
As a result, we have returned earnings to historical levels in all four of our businesses and.
And expect strong earnings growth and cash flow to continue over the balance of 2023.
Before turning to our plans to drive continued earnings improvement across RCP I'd like to give you an update on the Reynolds cooking and baking business.
As I mentioned, we executed extensive planned initiatives to stabilize manufacturing and improve operational efficiencies in the quarter.
Performance against those initiatives progressed as we had planned.
As a result, we continue to achieve the operational gross margin objectives, we set at the start of the fiscal year.
In addition, we have done the work required to ensure operational stability and equipment reliability extends well beyond 2023.
For example, we completed the largest combined scope of planned maintenance downtime and new equipment installation in the history of the Reynolds cooking on baking unit manufacturing operations, including replacement and rebuilds of key equipment.
Total upgrades to electronics.
Installation of condition based monitoring systems and installation of new automation equipment to our Spooling production.
We also advanced ongoing work to standardize manufacturing and maintenance processes.
In summary.
We are successfully executing the Reynolds cooking and baking recovery plan and I am confident in our ability to increase earnings in this business.
Now.
Let's turn to how we're performing at retail and what we're doing to drive growth with our retail partners and consumers.
Our integrated brand and store brand model continues to be a competitive advantage that.
And that was proven again in the second quarter.
Reynolds wrap gained more than five points of brands here in the foil category, gaining even more share than in the first quarter.
Reynolds wrap is responding to an improvement in retail price points and price gaps versus store brands.
A return to holiday trade promotions, which were very well received by retailers and consumers over memorial day, and leading into the fourth of July .
Increased advertising across major media platforms, resulting in strong double digit increase in media impressions versus the second quarter of 2022.
And increased reliance upon influencers and relevant media channels contributing to increases in household penetration among gen Z and millennials.
In waste bags.
<unk> entered 2023.
Waste bags share multiple points above 2019.
The brand is holding share in the company increased its share of store brand waste bags.
And food bags heft.
Hefty gain share a slider bags and the company's share of store brand pressed to close food bags increased.
And in tableware tacky held share of disposable tableware, while also benefiting from the consumer migration to store brands.
We implemented previously communicated increases in advertising and trade investment in the second quarter and the first half of 2023 and plan for continued investments over the balance of the year.
I've mentioned Reynolds wrap pronounced pick up in the media impressions and its penetration of young adult households.
In fact Reynolds wrap as increased household penetration and all major demographics, and we're seeing favorable household penetration trends for Hep D as well.
As planned we've also increased trade investment by implementing proven promotional programs.
Going forward, we plan to execute promotions around retailer key events and major seasonal periods, including back to school and the holiday season.
And in terms of innovation.
Since the launch of our hefty Fabulous, so lavender waste bags over two years ago and the more recent launch of our Fabulous So lemon waste bags, the entire fabulous old product line has grown exceptionally well, reaching $140 million in retail sales during the second quarter and attaining a 73 <unk>.
Sent ACB.
Yeah.
We expect this growth to continue as we earn more distribution of our Lemon Senate Fabulous so bags.
Other newer products that provide differentiation for our customers and consumers include Presto stand in fill store brand for us to close food bags Reynolds kitchen stay flat parchment was smart grid technology, and Reynolds kitchen Air Fryer liners, all of which are gaining increased distribution.
Environmentally friendly products are becoming more and more relevant among consumers, which provides us the opportunity to introduce more innovative sustainable products. These.
These include hefty ultra strong waste bags made with 50% recovered materials.
Patti and store brand waste bags made with post consumer recycled materials and store brand food bags, incorporating land and ocean materials.
Okay.
Also in the area of sustainability, we recently announced a grant to the new norm <unk>.
A startup out of Johns Hopkins University that has developed an exciting technology transforming materials from party cuts into sustainable yarns and fabrics.
As the number one party Cup manufacturer, we are excited to assist the new norm with their research and development efforts.
And we continue to operate in an economy with mixed growth signals, including shifting consumer confidence.
To ensure success in any economic environment, we're focused on providing consumers with the right combination of value product performance and convenience.
Our first half category share gains demonstrate our effectiveness in accomplishing that goal.
In closing, we are very well positioned for the second half of 2023.
We have restored profitability across RCP, our integrated brand and store brand model remains a competitive advantage and we're making the investments and innovating to drive added growth for rentals ft, and our store brands.
As a result, we expect strong earnings growth and cash flows to continue over the balance of the year with that over to you Michael.
Thank you Lance and good morning, everyone. We performed well in the second quarter, reflecting strong consumption trends at retail successful implementation of comprehensive initiatives to improve operations and return Reynolds cooking banking to historical earnings levels and in continuation of restored profitability in our <unk>.
Other three businesses all of this has set us up for a strong earnings growth cash flow and debt reduction this year.
Looking at the results net revenues increased 3% over the year ago period due to price increases combined with strong volumes and Reynolds cooking and baking, which were up 12% overall and 15% in our retail business. This increase reflected continued strength at retail, including consistent and significant share.
Gains for runes rap, which offset volume declines in our other three businesses.
And hefty waste storage volume decreased 8% driven by category declines and consumer migration to store brand waste bags, and food bags, where our sheer increased.
Volume in hefty tableware declined 7% consistent with category trends and Presto products volume declined 3% driven by lower specialty product sales volume, partially offset by continued strength in food bag products.
Second quarter net income and adjusted EBITDA also increased over the prior year period, driven by margin expansion across all businesses.
SG&A was also up as expected driven by higher personnel costs investments in advertising and professional fees in support of our Reynolds cooking and baking plan.
And higher interest costs continued to have an expected impact on net income in the quarter, reflecting higher interest rates our.
Our cash flow trends remained strong in the second quarter, resulting in operating cash flow of $207 million year to date, representing $106 million increase over operating cash flow for the comparable period in the prior year.
Looking ahead for the third quarter, we expect net revenues to be down in the range of 3% to 5% consisting of essentially unchanged pricing.
And 3% to 5% lower volume, noting that memorial day and fourth of July holiday promotions resulted in stronger second quarter shipments and higher household inventories at the start of the third quarter.
Our third quarter adjusted EBITDA is expected to be in the range of $155 million to $165 million up by comparison to adjusted EBIT of $116 million in the prior year, driven by Reynolds cooking and baking. Some recent return to historical levels of earnings and a continuation of restore.
Core profitability in our other three businesses.
And EPS is expected to be in the range of 34 38 per share.
For the full year 2023, we are Reconfirming, our revenue guide and raising our earnings outlook to reflect our strong performance in the second quarter. We continue to expect net revenues to be in line with prior year, plus or minus 1% consisting of 2% higher pricing and 2% lower volume at the mid <unk>.
Point of our Guy.
Consolidated retail volume is estimated to be in line with prior year consolidated retail volumes.
Consolidated non retail sales are estimated to be down $60 million by comparison to $268 million in the prior year.
And our new adjusted EBITDA range is now $615 million to $635 million up from our previous range of $605 million to $635 million and EPS is expected to be in the range of $1 34 to $1 41 per share.
Other key assumptions for the year include further execution of the Reynolds cooking banking recovery plan and earnings consistent with historical levels and all of our businesses in the second half of the fiscal year commodity rates, which have been consistent with our expectations since reporting first quarter 2023 results.
Remained broadly stable over the balance of the year.
Another year of approximately 200 basis points of incremental margin from revolution cost savings as expected and we will continue to use these savings as a potential source of investment in our categories and in our business.
Gross profit is slightly above $920 million at the midpoint of our adjusted EBITDA guidance with no significant change to annual depreciation and amortization interest expense effective tax rates and capital spending estimates that we provided in our last earnings call.
Now before I wrap up my prepared remarks, I would like to share my perspective on what's being achieved in Reynolds cooking baking as well as on our cash flow and debt reduction.
As Lance said, we began 2023 with a clear and comprehensive plan for restoring Reynolds cooking banking profitability. We are delivering on that plan, while also driving strong retail trends to the Reynolds portfolio.
In terms of cash flow as I mentioned first half cash flow was strong.
A big driver of that is the work undertaken to reduce inventory and our ongoing efforts to improve payment terms and in terms of capital allocation. Our priorities are unchanged invest in our business maintain capital spending discipline and continued to deleverage and evaluate bolt on M&A.
Which takes me to debt reduction I am pleased to report that we made a voluntary principal payment of $100 million.
Subsequent to quarter end and we continue to expect net debt in the range of $1 8 billion to $1 $9 billion at year end.
With that I'll hand, the call back over to you. Thank you.
Thank you Michael before we turn the call over to your questions. I know you would like an update on our CFO search following Michael's decision to retire following the release of earnings for the fiscal year.
The search for Michaels replacement is going well.
As I communicated in May during our first quarter earnings call. We are reviewing internal and external candidates for the CFO role.
I anticipate naming his successor on or before our next earnings release that timing will allow for a smooth transition.
With that operator, let's go to our first question.
Thank you.
I'd like to ask a question at this time. Please press star one from your telephone keypad and Incomprehension tell indicate your line from the question queue.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
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Our first question comes from the line of Rabat and <unk> with Evercore ISI. Please proceed with your questions.
Great. Thank you very much I'm, just wondering if you could maybe give us a little bit more insight into the Q3 sales guidance.
Hum.
And I think we understand the timing issues, but you know that's a pretty big decline in volumes.
Given your broad market share gains increasing household penetration.
Stepping up advertising, you're stepping up promos a little bit.
Tremendous commercial momentum.
It's surprising.
To us to see the the down volume guidance to that extent. Thank you.
Hi, Robert Thank you for the question. Our Q3 guide is based on two factors first of all we.
We are estimating non retail sales to be down 2% in the quarter.
And then the remainder is retail sales, 1% to 3% 2% of that that 1% to 3% is based on household inventories that were built on foil primarily.
As a result of the promotions and memorial day and fourth of July .
That was really.
Q2 sales were Q3 sales were pulled forward into Q2 now.
Now non retail sales or metal from excess capacity to industrial customers from our hot springs melting and casting facility as well as foodservice revenues, which are classified as related party revenues.
These sales have been a source of distraction and explaining our underlying top line performance, but have no meaningful impact to earnings because the products are very low margin.
As you saw in our release the reduction in non retail sales is approximately $60 million of net revenue as a headwind and approximately two point headwind to consolidated volume growth in 2023.
So we increased our earnings guidance fight that revenue.
Non retail impact.
Great that's helpful and in terms of the household inventories.
Can you maybe just give us some insight into your methodology in terms of understanding.
What that is and where that looks you know both for foil and your other categories.
Yes, it's done it's done on survey basis.
<unk> proprietary survey that we do with consumers on a quarterly basis.
I will tell you it's not all it's not always completely accurate, but it's trending accurate as we've done this over the last four years. During <unk>. We started this with Covid and it provides us an understanding of what's in their pantry and what customers intentions are from a restocking standpoint in the following.
Quarter.
Got it thank you very much.
Okay.
The next questions come from the line of Lauren Lieberman with Barclays. Please proceed with your question.
Okay.
Okay.
Just thinking about growth.
Thanks.
Hey, Lauren.
Laurie This is mark I think your line. We're hearing your line vary wildly I'd suggest you come back into the queue on a different line.
No.
I think it's your line I don't think its an art judging by the prior.
Please go ahead.
Yes.
Thank you. Our next question is from the line of Mark Astrachan with Stifel. Please proceed with your question.
Yeah, Hey, good morning, everyone.
Couple of questions on sort of.
I don't know I guess call it a bigger picture sort of how the consumers responding to pricing and the volumes in promotions I guess.
Your commentary about.
The response of holiday promotions Memorial day fourth of July Im curious, what Youre seeing and.
Hearing from both retailers and customers in terms of response to promotion.
How if they are responding to that does that affect or impact the ability to sell on everyday prices.
And sort of related to that how generally should we be thinking about retention of pricing I guess I've been pleasantly surprised at the ability to retain a lot of the pricing taken over the last few years I think go back.
Pre IPO there was some portion of pricing taken in the last cycle that was.
Given back to two folks in some form or another so how do we think about that on a go forward basis. Thank you.
Hey, Mark this lancers two two questions. There first of all response to promotions I think you need to look at it in two parts. One is the actual promotion period itself or the holidays for example in.
Really as an example was what we saw in Reynolds wrap where it's really been very effective as it has been in the past provided that opportunity for consumers to really.
Purchase products in front of a holiday occasion.
The second part of promotions is what we call <unk> is to ensure that the pricing is correct on the shelf with getting our price points, correct, which we've done very effectively.
With Reynolds wrap you can see that from the everyday purchasing not just on promotion, but a temporary price reduction is something that extends over a longer period of time and it's an adjustment to the shelf price to ensure that we get the price point, let's say below $5 or $4 99 on 75 foot rental threat.
We've executed that very effectively in the household oil category we are doing.
Doing the same in the other categories. We've proven that it works in household foil so for waste bags food bags and tableware products, we're evaluating the right price points and price gaps to ensure that we get the right <unk> in place for those categories as well.
The second part of that is the surprise on being able to retain the.
Pricing in this cycle.
And the answer to that comes from inflation.
<unk> environment is different than it's been in past cycles, we've seen labor inflation, we've seen inflation on other other costs like packaging costs.
And electricity and energy costs, they have retreated somewhat in the last few months, but they're still elevated from what they were historically.
So as a result of that the pricing is recovering inflationary costs not just commodity cost.
And.
Our retailer and consumers recognize that inflation is an environment that's across all products not just in household staples.
Great. Thank you.
Thank you. The next question is coming from the line of Lauren Lieberman with Barclays. Please proceed with your questions.
Great. Thanks, hopefully that's better you can hear me now much better.
Great sorry about that.
So I wanted to talk first I was going to ask about gross profit per unit could you talked about.
Previously around 920 million now you're saying slightly.
Above that I think for the year right.
And just it might be splitting hairs, but now the volumes you expect to be down a little bit and then you also have the impact of the non retail sales. So I was just curious if thats where you are on.
Projected to be I should say in gross profit per unit.
At the end of this year versus 2019, and then scope for that building from there.
Yes, so what you can expect from a gross profit per unit basis is that youll see sequential quarter over quarter over quarter improvements throughout the year.
And from a return to our profit expectations. We've arrived at levels that are beyond what we expected for what we had in 2019, so we're progressing quite well against that overall objective.
Okay.
Okay.
<unk>.
And then I wanted to also talk about.
Consumer behavior, and so while you know we know your portfolio and participating in store brand is very much part of the strategy and the approach and matter a lot today.
I felt like in your book.
The.
The prepared remarks and also in the release there was a lot more emphasis on.
Because they are being down trading at retail and I think it feels like we're not hearing it to the same degree of another company that has not.
Perhaps.
So with data so curious to know maybe what you think it is whether it's about your categories. Whether it is about why now versus six months ago or longer than that with pricing with first going into place but.
What's your understanding or sense of why the consumer behavior change is happening now when pricing is already pretty well established in the market and if anything I would expect that elasticity effect.
Yes.
Perhaps we overemphasize that in reading between the lines. There has not been a significant migration of private label in our categories. We've seen some migration of private label in our waste bags food bags business and a revision to our guide shows the strength of our integrated brand and store brand model and our diversified household products portfolio.
From a category.
Summary standpoint, private label share is up and waste and food bags.
And party Cups and then.
Plastic wrap which is a small part of the category.
But private labels down in foil foam dishes.
And other Reynolds cooking and baking products.
Our integrated brand and store brand model is a competitive advantage because it positions us to benefit from shifts in either directions, which is what we're emphasizing on our prepared remarks, and our press release and our retailers really rely on us to provide the right category mix that we've been doing that for years.
<unk>.
But the relative stability that we've seen is sound.
Economic Lee for consumers and retailers alike.
And as.
As I mentioned it a lot of earnings calls private label already represents a sizable portion of our categories Consumptions and private label category share has been relatively consistent through economic cycles.
Okay, great. Thanks, I'll pass it on.
Our next questions come from the line of Andrea Teixeira with Jpmorgan. Please proceed with your question.
Operator, and good morning, everyone. So I wanted to go back to the call.
<unk> now on Alaska, Sam promo.
So you said consumers and retailers senior prepared remarks, you said that that they are responding well to bringing back promo to the levels before.
And so I wanted to understand because you also had mentioned before in particularly aluminum foil.
That you are setting.
And price points that were obviously more interesting for them for kind of like protecting Andrew.
Entry level, and also allowing consumers to make choices within your brand can.
Can you comment on how that's evolved over the last I would say you started like mid last year, if I understood correctly.
And through now and then.
A second part of the question for Michael.
The gross margin I think the four points that you had alluded to for the full year you achieved in the quarter of course, there are puts and takes on productivity and all of that.
Can you kind of like update us on your goal.
I understand this is a moving target and it's hard to go back to that level that we were a pandemic, but there is definitely an expectation that at some point youre going to see that on a mix basis. Thank you.
Hi, Andrea Thank you I'll answer the first part of the question, which is regarding our investment in and trade in promotions.
The Covid gave us the opportunity to really reset our whole trade program because as you know in 2020 in 2021, we've really scaled back on trade promotions and focused on supply and ensuring that we had the right products in place for our retailers and consumers.
We have reinvested in trade spending, but we didn't necessarily go back to the previous programs that gave us the opportunity to completely reset and reevaluate.
Where we had proven promotional trade programs and the right price points at new inflationary levels.
And we've got programs that have been really proven and tailored to our categories and our customers and we've proven that with the Reynolds wrap volume that you're seeing.
Now, we're not necessarily back to 2019 levels are really depends on the category and in some levels in some cases, we're promoting more of our volume in other and other categories of products less it really depends on the price points that we're looking to achieve and the specific holiday and features that we're looking to.
To gain.
So historically.
Prior to the pandemic roughly 25% of our sales were on promotion in a given year. We're below that at this point, we feel our marketing spend is efficient and effective we're seeing good share trends for our brands on our total business as we enter 2023, and we have a strong position across our categories.
Okay.
And then.
I'm sorry go ahead, Michael I will come back no I was going to add.
Continue with your first point.
Yeah, No I wanted to just as lastly, we're saying like so should we expect and I understand the puts and takes from a shipment perspective, and the timing and getting these other known non retail contracts out of the way.
Hi.
Underlying basis, though is the shipment against consumption trend similar now.
Granted that you have some inventory to work through the pantry.
When do you think are you planning for that to reverse itself I believe in the fourth quarter. If I'm. If my math works right that the fourth quarter, we see more shipments against consumption.
Yes, I think there are three dimensions here Andreas it's a great question one is retailer inventory.
And in consumption from consumers and those are in line, we monitor that very closely by retailer by product category.
We have we have consistent consumption with shipments in retailer inventory, what we're referring to is whats occurred primarily in households oil and to a lesser extent. The other categories is household inventory and we have seen a gain in household inventory of the pantry is a result, primarily of the.
Our holiday promotions in the.
The holiday period for household oil that will then work its way through in Q3 and to your point, we expect that to be depleted by the end of Q3 and respond to our Q4 promotions and growth in Q4 versus prior year.
Okay. Thank you sorry.
Sorry.
Please go ahead, yes, I was going to answer your question around gross margin. So if you look broadly process, we've restored our unit profitability already.
With gross margins of approximately 24% this year.
As you look at the long term journey, our journeys, we see ourselves getting back to the high <unk> in gross margin percentage strength standpoint.
On the rental recovery.
His plan to boost that obviously it continues along the journey. We also know that Revolution has been a continued source and contributing to the overall gross margin improvement.
And then we also were focused on driving.
Increases through our innovation efforts.
So we feel good about our journey and basically we do anticipate getting back into those high <unk>.
And no timing on that yet correct.
Yeah.
Okay. Thank you.
As a reminder, if you'd like to ask a question today you May press star one from your telephone keypad. We ask you. Please limit yourself to one question and one follow up and re queue for any additional questions.
The next question is coming from the line of Peter Grom with UBS. Please proceed with your questions.
Thanks, operator, and good morning, So I guess I just wanted to follow up quickly on Andrea's question because.
The implied <unk> sales guidance really depending on where you fall into three key range does seem to suggest continued sales declines exiting the year.
So maybe just to put a finer point or are you actually expecting volumes to return to growth.
As you did in <unk>.
To respond to the promos and that the decline is from lower price. If you could just put a finer point on that would be helpful.
Sure Peter absolutely.
If you deconstruct the guide we expect retail sales to be up 3% in the fourth quarter.
We expect a 3% increase in the fourth quarter due to comparisons if you remember we were lapping Q4 2022, when elasticities really picked up.
And our retail volume if you compare it to 2019 is up 5% and for Q4, it's up 6%. So stack growth is continuing.
Our brand momentum.
And we are seeing growth in the fourth quarter.
Yeah.
Got it that's Super helpful. And then I guess, just given that exit rate Peter Peter This is mark those are all volume comments.
As Lance said, there pertaining to the retail component of the business.
Okay.
Maybe just following up on that then maybe how should we think about maybe following on a March earlier question around pricing moving forward because it did sound like there may be less price give back given inflation is still high elsewhere, despite moderating commodity costs. So.
Is that right is that is that the expectation because I know <unk> pricing is expected to be flat, which is a bit better than most were anticipating.
Would you expect pricing to kind of to ship negative here in the fourth quarter and how does that inform your view as we think about the exit rate into 2024.
Okay.
We don't expect there to be any significant change in pricing in Q4.
We will consider additional pricing actions as inflation picks up again, but we're not seeing pressure for increases at this time, we do have some contractual pass through of lower commodity costs.
But that's offset by some of the increases we've seen in other inflationary impacts which were.
Ensuring that we have price for that as well across our entire portfolio.
Yeah.
Great. Thank you so much I'll pass it on.
The next question is from the line of Bill Chappell with <unk> Securities. Please proceed with your questions.
Okay.
Thanks.
Wanted to.
I guess to ask the same question on third quarter volumes a different way.
I guess I.
Assume that.
As were looking back at last year as we got into the summer we kind of started to lap fully lap omicron COVID-19.
Behavior more people at home so.
I would assume that.
The second quarter was kind of the last tough comparison and third quarter would be where you had a more normalized comparison and so by by that thought process volume should improve sequentially.
Thinking about that wrong, where people are more at home still all the way up until September or.
Just from a consumer behavior trends I would think that the.
The comps get easier as we move forward.
Yes. Good morning, Bill this is mark.
Let me respond to that and it is really to amplify something Lance said in his response to I believe it was Robert.
In the in the second quarter, you can see our volumes were flat overall.
In the third quarter, if you take the midpoint of our revenue guide, we're looking for volumes to be down 4%.
As Lance said, we got about a two point volume benefit in the second quarter from that that household buying a product more successfully than we anticipated. So if you actually just simply move those two points out of the second quarter and into the third quarter.
You wind up with but I'm, sorry out of the third quarter back into the second quarter, you wind up with a minus two in both periods.
So it's a very consistent trend and then I want to add to something Lance said, a moment ago about the fourth quarter and we are looking for our volumes to pick up in the fourth quarter.
But again the reason for that is we're lapping a very a comparatively easy compare in the fourth quarter and then to build on something Lance that if you actually look at our volumes in the fourth quarter compared to 2019 levels.
They're up consistent with the amount of increase we're looking versus 2019 on a full year basis. So that's a very long way of saying, we're looking for very consistent underlying trends. It just boils down to the nature of the comparison.
Okay.
My question.
Am I right in saying that we're kind of into the normalized period on a year over year comparison or.
You're already seeing kind of normalized last quarter.
Okay.
You are right to say that we.
We started having very normalized comparisons early this year and fourth quarter last year, we did see a pickup in a pickup any elasticity. So you get that comparison benefit if you will in the fourth quarter and we're not looking for a versus <unk> 19 improvement in volume performance. So you can actually make the case that.
We'll have better performance in the fourth quarter, we're not making that case by any means but very similar comparisons because.
Does.
Because what I just said.
Got it.
And then just a second follow up on.
There's been a lot of talk this quarter from consumer companies about weather.
Honestly, you're picking out items tableware type stuff would be affected but I don't think you really mentioned it.
It wasn't enough of an impact was it a normal summer weather wise for your business any comments there. Thanks.
Okay.
Normal weather wise from a consumer consumption of tableware, yes, we are seeing elasticity issues that I mentioned in the tableware businesses where prices have increased.
Double digits, we've seen some pullback of consumer purchasing.
Working to adjust price points accordingly, as we have been household oil.
Weather events have modest moderately impacted some of our manufacturing operations with some power outages over a day or so but not had any impact on consumer demand that we've tracked.
Great. Thanks, so much.
Thank you our.
Our next questions come from the line of Brian Mcnamara with Canaccord Genuity. Please proceed with your question.
Okay.
Hey, good morning, guys. Thanks for taking our questions and congrats on the progress on your initiatives. So I don't mean to beat a dead horse on household inventories, but in layman's terms is this promotional lever and loyal healthy overall with the fourth of July promotions, creating pantry overloading Philbin extra motion at the end of Q3 are these promotions.
Required in your view like how do you think they would look with that thank you.
Well, we've done holiday promotions of Memorial day, and leading into the fourth of July consistently prior to Covid and it's been a very healthy improve.
Improvement to our business and our share and you can see we saw those share results and the volume uptake.
As a result in 2023 as well so despite the fact that Theres. Some household inventory build from an overall volume growth standpoint, and profitability improvement, it's a very strong and good investment.
And how should investors think about the volume algorithm longer churn across your businesses.
Our volume share.
<unk> growth.
Yes, I would say that our volume growth is consistent with the categories, we are holding share or growing share in all of our categories then.
The categories are responding to some elasticity issues, which we're addressing through price points and promotions.
Great. Thank you.
The next question is a follow up from the line of Mark Astrachan with Stifel. Please proceed with your question.
Yeah, Hey, thanks for the follow up guys.
Just two things one on the interest expense Michael.
Your guidance for <unk> does that reflect the debt payment does that reflect lower rates.
Yes.
Both both.
Okay.
Got it.
And then just I know, it's early and don't want to talk about 'twenty. Four I guess you had given some comments a year ago I think about gross profit anything that you can give there in terms of how we think about.
Continued recovery in gross margin and how that worked with expectations for topline at this point that maybe more hypothetically than anything else.
Yes, I think broadly it's a little too soon to talk about that at this time.
Alright, I tried thank you.
Sure Hi, Mark.
<unk>.
Okay.
Thank you at this time, we've reached the end of the question and answer session and I will turn the call over to Lance Mitchell for closing remarks.
Thank you. Thank you everyone for your questions and your interest in our our business and Reynolds consumer products.
I want to extend a sincere thank you to all of our employees.
And especially that many employees are responsible for the ongoing and effective execution of the Reynolds cooking and baking recovery plan.
Our business overall is performing well and we look forward to updating you with further updates throughout the year.
Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.