Q3 2024 Reynolds Consumer Products Inc Earnings Call
The End.
Speaker Change: Greetings and welcome to the Reynolds Consumer Products Incorporated 3rd Quarter 2024 earnings call. The time-alpetence sensor and list-only mode. The brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require our progressive system during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: is now my pleasure to introduce your host Mark Swartzberg, Vice President of Vester relations. Thank you sir, you may begin.
Mark Swartzberg: Thank you, operator. Good morning and thank you for joining us for Reynolds Consumer Products. Their Porter earnings conference call. Please note that this call is being left cast on the Investor Relations section of our corporate site at ReynoldsConsumerProduct.com. Our earnings, press release and presentation slides are also available.
Mark Swartzberg: We've been on the call today, our Lance Mitchell, our President and Chief Executive Officer, Scott Huckins, our Chief of the Analyst Officer, and Nathan Lowell Senior Vice President and Head of the Analyst Planning and Analysis.
Mark Swartzberg: Following Preparedary Marks, we will open the call for a brief question and answer session.
Mark Swartzberg: Before we begin, I would like to remind you that this morning's discussion will contain horrible things statements which are subject to risk.
Mark Swartzberg: on certain seeds and changes in circumstances that could cause actual results and outcomes.
Mark Swartzberg: and the other two people who are watching this video, we'll see you next time.
Mark Swartzberg: and the WCP filing. The company does not intend to update or alter these four looking statements to reflect events or circumstances arising after the call.
Speaker Change: During today's call, we will refer to certain non-gap or attempted financial measures.
Speaker Change: Reconciliation of the gaps and non-gap financial measures are available in our earnings press release, investor presentation deck, and Ford 10Q, which can be found on the Investor Relations section of our site. Now I'd like to turn the call over a lamp.
Speaker Change: and Good Morning, everyone. Our business is performing well and we are investigating the products, business wins, and new processing opportunities to drive to stay long-term profitable growth.
Speaker Change: and the former mayor of the state, and the mayor of the state.
Speaker Change: Our retail volume was unchanged and in line with our categories after adjusting for product portfolio optimization and shipment timing as we covered on the Q2 call.
Speaker Change: We commercialized innovation across our categories, expand our innovation pipeline and grow increase awareness among younger consumers.
Speaker Change: We identified and delivered further revolution cost savings.
Speaker Change: And we demonstrate the value of our diversified business and product portfolio delivering the run-in-the-loop and learning and why we are expectations.
Speaker Change: and I will continue to work to drive improved revenues and profitability in our state of the road business.
Speaker Change: The former viewing each of our businesses, I want to remind you of some of the factors positioning our CP versus staying and attractive long-term growth. Our products are well known, affordable and convenient.
Speaker Change: We are effectively leveraging our business model to drive our categories and develop new business in partnership with our retail customers.
Speaker Change: We are successfully introducing new products to drive share. And as I mentioned, our pipeline is only getting stronger, including an expanding range of affordable sustainable solutions.
Speaker Change: We're commercializing scientists at advances in consumer insights, acquired through the success of investment in RD, including last year's purchase of autochromo manufacturing.
Speaker Change: and we're reducing operational costs and identifying significant additional revolution costs and it's
Speaker Change: and the United States, providing the digital resources for running school.
Speaker Change: Our tableware business unit is a focus for many of you and it is Ross. So I'll speak to that first.
Speaker Change: The tableware business unit reporting volume earnings decline primarily driven by lower-fone play volume and increased promotional spending.
Speaker Change: These D-Creases were largely driven by recent legislative changes in several states, consumer shifting towards more sustainable offerings and a reduction of retailer's home play in the tours.
Speaker Change: While you're from the rest of our tableware business was upmodestly and continues to outperform its categories. Further demonstrated the effectiveness of the Christ's tax, our potential and promotional strategies that we initiated at the beginning of the year.
Speaker Change: We expect foam friends to remain ahead when we're in the near term and have a record of successfully responding to buying the clients within our tank aware of this us.
Speaker Change: As we review earlier this year at our investor day, we fully offset a double-digit phone buying in the time of 2019 and 2023 with growth of other displays of the same more products over that period.
Speaker Change: A number of factors under why our confidence and our ability to continue building a thaw on our success, repositioning our teamwork business for both.
Speaker Change: We offer a wide range of branded and store brand to standard solutions, not only in place, but across the disposable tableware.
Speaker Change: and we've been spanning our meat-bodded pipeline emphasizing not only to say the ability, including the leveraging of technology acquired in the Otacama acquisition, but also other grinders including function, fun, and affordability.
Speaker Change: and commercializing scientific advancements and consumer insights for investment and R&D.
Speaker Change: Art Thurke Quarter results, Highlight Crusher, a portion of our team were portfolio. But this doesn't affect actual potential as we've demonstrated my effectively managing product life cycles and our new product pipeline and capabilities are strong.
Speaker Change: The End.
Speaker Change: The Reynolds Company and baking business delivered another solid quarter and how it will the main star.
Speaker Change: Reynolds Rapp gained additional share in household for all.
Speaker Change: Reynolds Kitchen's parchment continued to grow reflecting strong innovation and significant distribution dates.
Speaker Change: We recently received new findings on several years of increased and targeted work to build brand attack that he developed consumers.
Speaker Change: and Oct. Leaser for that uneven awareness of Donald's outfuel and Reynolds Kitchen's parchment among millennials and Jim D. has grown strong double digits of 2021, a baseline period of measure.
Speaker Change: and in the very local nations, we are building an operational reliability and consistency.
Speaker Change: and Implementing New Programs to achieve increased production efficiency.
Speaker Change: Turn the happy race and storage and press out.
Speaker Change: Our wait and sword business continued to perform well in the quarter and the outlook for these businesses is crossed.
Speaker Change: Recent Waste Bags shared trends to be difficult to interpret due to a competitor sighted rates in the last year, but the data is clear. FD-Share of Waste Bags is about 22 levels.
Speaker Change: and the happy one is the storage space that's unit to alert the vacuum accordingly relative in the third quarter.
Speaker Change: and Food bags, where we have built a majority share position in store where at Food bags.
Speaker Change: and the volume of the story grants, which was 2% in the quarter.
Speaker Change: and the area of product division, healthy fabulous airway stacks, which you $200 million in annual sales in the quarter. Setting up the stage will roll out of healthy fabulous water in the home.
Speaker Change: and John McLean, which is tested while with younger consumers and it wants to nationally, early next year.
Speaker Change: After he passed the course, we've had a studio to build a warehouse of loyalty.
Speaker Change: and the World Forum, Brandon Thudberg, and is also rolling off nationally in Parkershire with Major Retailers next year.
Speaker Change: and Waste and through that category is to tell you the benefit from our spinning range of sustainable solutions.
Speaker Change: The fourth turning of Call of the Scott, I want to know the devastation that so many of the viewers experiencing from Hurricane Milton and Ali.
Speaker Change: Reynolds is doing a product to obtain these to support relief efforts by donating you have to trash bags and teamwork products to the American Red Cross. We distribute these products to families who cover it from these hurricanes and other disasters.
Speaker Change: Please join us in supporting the American Vendrous Online at Vendrous.org.
Speaker Change: As I said in my opening remarks, our business is performing well overall and we're investing in our categories, product innovation, new business wins.
Speaker Change: and significant incremental revolution of cost savings to drive, to stay and track the long-term road.
Scott O'Lears: Scott, O'Lears.
Scott O'Lears: Thank you, Lance. Good morning, everyone. We delivered on the financial priorities. We sent at the start of 2024 again in the third quarter. Do I have in our categories? We're starting the cash flow while also reducing leverage and increasing financial flexibility.
Scott O'Lears: Our cue through results were in line with the expectations coming into the quarter with the exception of non-retail revenues which exceeded our expectations by approximately 10 billion.
Scott O'Lears: As a reminder, we estimated 15 million of revenues were pulled forward into Q2 from Q3 as concentrated in our guide.
Scott O'Lears: Total revenues of 910 million in the third quarter from the upper end of our guide in consistent of 856 million in retail revenues in 54 million of non retail revenues.
Scott O'Lears: Third quarter of a Justin Ebedop increased 6,171 million driven by lower operational and Q&A costs partially offset by lower repents.
Scott O'Lears: and the first year, we're 41 cents, up to 11 per cent from the third quarter of 2023, reflecting the event.growth and lower interest expense from pain.net.
Scott O'Lears: Cash conversion remains strong with free cash flow of $93 million for the quarter.
Scott O'Lears: As a result of our strong profitability and balance sheet discipline, we continued to reduce net debt leverage, now at 2.3 times trailing 12 months adjusted EBITDA as of Q3.
Scott O'Lears: and we made an additional 50 million dollar voluntary principal payment subsequent to quarter end which makes this our third prepayment of the year totaling 150 million dollars year to date
Scott O'Lears: Before turning to our year-to-date results and guide, I want to provide you with additional detail on Tableware.
Speaker Change: As Lance said, Tableware's third quarter revenues were driven by lower foam plate volume and lower pricing resulting from increased promotion.
Speaker Change: However, the volume of other disposable tableware categories continued to respond well to our Price Pack Architecture initiatives, increasing modestly and outperforming its categories by nearly one point.
Speaker Change: We expect foam plate volumes to remain an increased headwind for a period of time due to legislative and consumption changes in several states.
Speaker Change: However, as Lance also pointed out, this business has great potential, as we have a clear record of successfully repositioning cableware for growth, and we are doing the work to build on our success in offsetting declines in a portion of our portfolio.
Speaker Change: For the year-to-date Q3 results, retail revenues were $2,544,000,000 while low-margin non-retail revenues decreased to $131,000,000.
Speaker Change: adjusted EBITDA of $465 million, increased $67 million from the year-ago period driven by higher manufacturing output and lower operational costs, partially offset by lower net revenues and increased advertising investments.
Speaker Change: Earnings per share were $1.10, up 43% from $0.77 in the same period of 2023, driven by higher adjusted EBITDA and lower interest expense.
Speaker Change: As a reminder, we had a non-recurring tax benefit in the second quarter of five cents per share.
Speaker Change: Now, turning to our guide.
Speaker Change: To reflect the stronger than expected third quarter non-retail revenues, we are slightly increasing our full year 2024 net revenue outlook to a range of $3,620,000,000 to $3,660,000,000.
Speaker Change: compared to revenue of $3,756,000,000 in 2023. As part of this guide, we continue to expect a one-point reduction from pricing, which includes certain contractual pass-throughs.
Speaker Change: We expect a minus half point to a plus half point impact from retail volume, which is unchanged at the midpoint and in line with or better than our categories. This tightens the range by 100 basis points compared with our prior guide.
Speaker Change: We now expect a combined two-point headwind from a non-retail business and the optimization of our retail product portfolio, slightly stronger than our prior outlook.
Speaker Change: We plan to continue leading our categories and perform at or better than our categories.
Speaker Change: We are up to, in our full year, adjusted EBITDA guidance range to $673 million to $683 million, representing a 7% increase over $636 million in 2023.
Speaker Change: and we anticipate our full year 2024 earnings per share to be within the range of $1.66 to $1.70 per share.
Speaker Change: Other considerations incorporated into our full year 2024 forecast are as follows.
Speaker Change: Increased rates for certain commodities, which in the case of aluminum and key resins, are now priced 10 to 15 percent above January 2024 levels.
Speaker Change: SG&A is expected to remain materially unchanged compared to SG&A in 2023.
Speaker Change: Howard Appreciation and Ammonization Assumption is approximately 125 million.
Speaker Change: Interest expense continues to be estimated at approximately $100 million.
Speaker Change: And, our estimated full year effective tax rate remains just over 22%, which includes the one-time tax benefit of 5 cents per share in the second quarter.
Speaker Change: Turning to the fourth quarter.
Speaker Change: We expect Q4 net revenue in the range of $945 to $985 million versus $1,007,000,000 in the fourth quarter of 2023.
Speaker Change: The assumptions include
Speaker Change: A two-point reduction due to pricing.
Speaker Change: A one-point reduction to a three-point increase from retail volume, reflecting sequentially improving retail volume.
Speaker Change: and a three-point reduction attributed to non-retail volume and the optimization of the retail product portfolio.
Speaker Change: We forecast fourth quarter adjusted EBITDA in a range of 208 to 218 million.
Speaker Change: As we said when reporting first and second quarter results, we expect the quarterly contribution of EBITDA to return to historical averages in 2024.
Speaker Change: As a reminder, we anticipate an approximately $10 million increase in combined costs.
Speaker Change: to negatively impact our fourth quarter results reflecting the flow-through of aluminum purchased during the second quarter and premiums paid for cooking bags as we transition to insourcing this product offering.
Speaker Change: in terms of capital allocation.
Speaker Change: Our priorities are unchanged and we continue to drive cash flow and plan to invest in strategic opportunities.
Speaker Change: As you may have seen, we extended and upsized our revolving credit facility earlier this month to better align with companies that have similarly strong credit characteristics.
Speaker Change: We replaced an undrawn $250 million revolving credit facility with an undrawn $700 million revolving credit facility, maturing in October 2029.
Speaker Change: Our term loan facility under the credit agreement continues to mature in February 2027 and we are actively monitoring market conditions for a potential refinancing of this facility on the basis of our strong cash flow profile and improved credit metrics.
Speaker Change: Our program of debt reduction translates into further declines in quarterly interest expense, assuming no change to interest rates, while also increasing our ability to invest in attractive organic and inorganic opportunities to drive earnings growth and returns on invested capital.
Speaker Change: In closing, as Lance mentioned, our business model remains a competitive advantage.
Speaker Change: Our product portfolio and business is diversified, and we are doing the work to build on our history of successfully repositioning tableware for growth.
Speaker Change: We are driving our categories and investing in an expanding range of new products.
Speaker Change: We are adding new programs to our strong pipeline of revolution cost savings.
Speaker Change: And we are driving cash flow and strengthening our balance sheet, providing us with additional resources and flexibility to drive attractive long-term growth and value creation.
Speaker Change: With that, I will turn the call back over to Lance.
Lance Mitchell: Thank you, Scott. I am pleased to announce the next stop in the history of leadership of RCP.
Lance Mitchell: As you can see from this morning's press release, Scott will succeed me as President and Chief Executive Officer of Reynolds Consumer Products.
Lance Mitchell: and Nathan Lowe, currently head of financial planning and analysis, will succeed Scott as chief financial officer.
Lance Mitchell: Both changes are effective January 1st of next year and I will continue in an advisory role until the planned transition of responsibilities to Scott and Nathan is complete.
Lance Mitchell: I'm extremely proud of all that we have achieved since my joining Reynolds Consumer Products as president and CEO 14 years ago.
Lance Mitchell: when we formed our CP through a combination of activations.
Lance Mitchell: We've accomplished a lot over this period.
Lance Mitchell: Successfully making safety our number one priority. Developing and implementing our business model of category leadership by providing brand and store grants.
Lance Mitchell: which has proven to be a competitive advantage.
Lance Mitchell: expanding our new product pipeline, making our categories stronger while also driving share.
Lance Mitchell: consistently delivering revolution cost savings while also identifying and unlocking significant additional savings opportunities.
Lance Mitchell: And most importantly, building a culture of collaboration, diversity, listening, and teamwork that is creative, hardworking, and committed to winning every day in close partnership with our retail customers.
Lance Mitchell: As I said, this announcement is part of a planned transition, and now is the right time for implementation.
Lance Mitchell: Our business is strong and performing very well, on track for delivering its second best year of earnings since going public, a period including 2020 which was exceptionally strong because of the pandemic.
Lance Mitchell: Succession planning is an area of strength for RCP and Scott and Nathan are highly qualified for these roles.
Lance Mitchell: I'm pleased that so many of you have gotten to know Scott since his joining RCP and that you've interacted with Nathan in the days leading up to and since our listing as a publicly traded company.
Lance Mitchell: I look forward to working with each of you in the coming months.
Lance Mitchell: and I'm confident in Felix's transitions.
Lance Mitchell: This will be my last quarterly earnings call as President and CEO of RCP.
Speaker Change: It's been a pleasure working with so many of you since our IPO in 2020.
Speaker Change: A sincere thank you to the 6,000 RCP employees that have made the last 14 years rewarding both professionally and personally.
Speaker Change: I thank you to all of our retail partners. You have challenged us each day to be a better, stronger supplier to you and consumers.
Speaker Change: and thank you for all of you that call into these quarterly earnings releases.
Speaker Change: As you know, we take time and care preparing for these meetings, and we appreciate you taking the time to listen and for your interest in RCP.
Speaker Change: Since the leadership changes are scheduled to take effect January 1st of next year, we would ask that you direct your questions to Scott and me during this call. Operator, over to you for questions.
Speaker Change: Thank you.
Speaker Change: Thank you. We will now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question, please press star 1 from your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment, please, while we poll for questions. Thank you.
Speaker Change: Thank you, and our first question will be coming from the line of Nick Modi with RBC Capital Markets. Please proceed with your questions.
Nick Modi: Yeah, thank you. Good morning everyone and Lance, Scott, Nathan, congratulations.
Nick Modi: And specifically to you Lance, I don't know if you know this, but you have doubled the average tenure of a CEO, so congratulations.
Nick Modi: really enjoyed working with you. On to my question, you know, if you think about the kind of overall environment, I'd love to understand kind of how you guys are thinking about the holiday season, which is obviously a very important
Nick Modi: period for the company. And this just kind of the interplay between what is happening broadly in the economy and this kind of out-of-home, into-home migration. Would love to kind of get your perspective on those dynamics for the fourth quarter. Thank you.
Lance Mitchell: Thank you, Nick, and thank you for that compliment. I'm well aware of the fact that I've extended the tenure of an Average CEO and I'm ready to retire. The state of the consumer remains challenged, but as we talked about in the Q2 earnings call, we have
Lance Mitchell: The plans and promotions and new product innovations in place for a strong holiday season. We're very confident.
Lance Mitchell: and our guide that we just announced.
Lance Mitchell: and from our retail partners and their confidence in the holiday season. So, what we're seeing so far is very positive and still early, but as you can guess, we do get early leads on what the holiday season looks like and it's positive for 2024.
Speaker Change: Great, I'll pass it on.
Speaker Change: Our next question is from the line of Andrea Teixeira with J.P. Morgan. Please receive your questions.
Andrea Teixeira: Thank you, operator. And Lance, it was a pleasure also interacting with you and thank you for educating us on the Sense IPO and wishing you a great new chapter in your life and also congratulations to Scott and Nathan. Now my question is on the down trade that we have been seeing, you know, in general. I think it's probably your RGM.
Andrea Teixeira: at Play here, which obviously you have your private label offering, and you also have price points that allow for that. So I was wondering if you can...
Andrea Teixeira: help us kind of parse out that impact and see if there is any additional movements that you see, or if you're into 2025.
Speaker Change: We are mostly done or lapped into that price point situation. And similarly for tableware, you've been very upfront since the IPO about the phone issue, right? So in general, some of the municipalities have been switching out. I was wondering if you also can give us like time of like a bit of a timeframe and now how much of your tableware is dependent upon that form.
Speaker Change: get ahead of it before having that impact and potentially a lot of promo related to that form. Thank you so much.
Speaker Change: On a year-over-year basis, private label share is up in some categories and down in some others, and we're influencing and responding to these changes very effectively.
Speaker Change: As we've talked about over the years, two things. One, our business model is a competitive advantage by doing both brands and store brands.
Speaker Change: and secondly these categories are highly penetrated by private label already so we don't see significant shifts occurring year-over-year between brands and private labels.
Speaker Change: On tableware, the foam trend is one that we have been seeing since 2019 as we indicated in the prepared remarks. We have very specific plans and new product development and continued work across the portfolio to ensure growth of the overall tableware business.
Speaker Change: Scott, you know, I would just add to that, hi Andrea, in terms of the phone topics that tape work broadly, it's really the tale of two portfolios. The phone category is declining, so resourcing and focus on costs in our execution of that category would make sense.
Speaker Change: On the other hand, we have a lot of innovation, growth, and outperformance of the comparative categories away from POM. Again, the imperative there would be to resource and invest for that growth.
Andrea Teixeira: How much, and that's helpful, how much do you still have as a total form of phone within your tableware sales?
Speaker Change: We don't share SKU level detail as you you might imagine given the competitive sensitivity of it. I'm certainly willing to share it's the minority of the portfolio but that's about as far as I think we can go.
Speaker Change: Okay, that's fair. Thank you both.
Speaker Change: Our next question is coming from the line of Mark Astrachan with Stiefel. Please proceed with your question.
Mark Astrachan: Yeah, thanks and morning everybody.
Mark Astrachan: I guess it's still pretty early on from a 25 planning standpoint, but maybe trying to approach the question that you're not going to answer in a different way.
Mark Astrachan: Amen.
Mark Astrachan: How do we think about, how are you thinking about just consumer demand, kind of as we sit here today, you talked encouragingly about holiday, you know, retail volumes have accelerated through 24.
Mark Astrachan: So I guess you kind of put some stakes there in terms of just broad strokes how you're thinking about the consumers We had in the 25 and then the other question relates more to commodities You know aluminum is has really moved up here any more than many have expected
Mark Astrachan: How do you think about that from here, including if it stays here, do you have to take more pricing? Can you offset that in other ways from a cost pressure perspective? Thank you.
Speaker Change: I'll take the category and consumer question. I'll turn the quantity question over to Scott. We are seeing a bit of improvement in category volumes in Q3 versus the first half.
Speaker Change: and that included the added pressure on foam plates.
Speaker Change: It tells us the category price and volume is coming at a better balance than at the start of the year and the shift to at-home consumption continues to be a modest tailwind for our categories.
Speaker Change: Our QFAC 4 guide assumes a category forecast.
Speaker Change: improvement from where we've seen Q3 and we've seen retail adjusted volume for shipment and time and portfolio optimization improve compared to the first half performance.
Speaker Change: So overall, sequentially, quarter to quarter, we're seeing modest improvement across most of our categories.
Speaker Change: Good morning. I'd like to offer a couple of comments and thoughts on commodities. The first would be, on aluminum, noted that we've seen escalation. We don't see...
Speaker Change: Fundamental Supply and Demand Imbalance. So we'll see if this is transcendental or if it sticks for a period of time.
Speaker Change: The thoughts on on how to manage the commodities are a few. One is aluminum is a traded exchange so we look at and periodically execute caps, collars, those sorts of hedging tools or cost control tools.
Speaker Change: Number two, we also work with our vendors to attempt to have, for example, semi-annual price structures rather than monthly settlements. That may not change the cost per se, but it allows for more call it control of those costs over a period of time.
Speaker Change: Third would be, and will always be, our ongoing focus on revolution to continue to drive costs.
Speaker Change: out of our business, then of course the last lever is pricing, recognizing that pricing also comes with the imperative of making sure we're thinking about price gaps and elasticity. So I think that's the lineup against potential volatility in commodities.
Speaker Change: got it that's helpful and then I'm just just on the credit facility upsizing there and
Speaker Change: thoughts on what to potentially use it for, if anything. I feel it's also sort of related to leverage.
Speaker Change: continuing to fall here so your balance sheets
Speaker Change: probably in a better position than it's been in a really, really long time. Would that potentially change for the combination of the two to look at more transformative M&A? Are you happy with your categories of presence? Any update there?
Speaker Change: I think you're asking about the size of the revolver, if I heard you right? Both that and the fact that the leverage on the balance sheet as it stands today is much lower than it's been.
Speaker Change: So the thought on the revolver, we looked pretty carefully across the marketplace.
Speaker Change: for Simile Situated Companies, meaning size and profitability, and the conclusion is
Speaker Change: kind of a one-time even a threshold for revolver sizing is quite consistent that was the main the main thought behind it.
Speaker Change: and of course extending that maturity for five years.
Speaker Change: On the leverage print, again, we're pleased that the cash flow profile of the company is performing very much as we outlined in Investor Day.
Speaker Change: And we've consistently said all year long, north of $300 million of free cash flow, which is in the sphere of 50% free cash flow flow-through, and again, much like we talked about.
Speaker Change: You know, so it's 2.3 times that we keep going back to the same framework, you know, we talked about which is capital allocation as theory of leverage.
Speaker Change: internal or organic investment back into the company, emphasis on both productivity investments
Speaker Change: in emphasis on innovative investments.
Speaker Change: Number two, of course, would be inorganic or M&A opportunities outside the company. And then the third would be returns of capital to shareholders. And I think the key point there is we believe that the right way to do that is each of those three can pay for capital on a returns basis. So that philosophy or that framework continues.
Speaker Change: Great, thank you very much.
Speaker Change: You're welcome.
Speaker Change: Our next questions are from the line of Jim Abbott with Barclays. Please proceed with your questions.
Jim Abbott: Hey, good morning. I wanted to touch on, maybe keeping with the theme of commodities and input costs. Back in late August, we had some news
Jim Abbott: on Canadian tariffs.
Jim Abbott: on Chinese aluminum. I think your Canada business is quite small, but wondering what maybe the competitive impact of that would be and, you know, more generally should
Jim Abbott: tariffs become more prevalent ahead of or, you know, after the election next week? How might that impact competitive environment more broadly in the U.S.? Thanks.
Jim Abbott: Hi Jim, first of all the Canadian tariff itself on aluminum has a de minimis impact to Reynolds consumer products but
Speaker Change: All of us have a lot to learn about the tariff environment as it develops in the coming months. We're staying very close to it, and we'll see how it develops. But we have had experience in managing through tariff challenges successfully over the last several years.
Jim Abbott: Got it, thank you. And then just one other quick question if I can. The legislation you're talking about in foam plates, can you expand on what exactly that is and if, you know, legislation risk is...
Speaker Change: you know.
Speaker Change: potential or has potential in other categories. Thanks.
Speaker Change: Yes, some states and localities have banned the sale of foam, primarily in the West and the Northeast.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you'd like to ask a question today, press star 1 from your telephone keypad.
Speaker Change: Our next questions are from the line of Robert Pottenstein with Evercore. Please proceed with your questions.
Robert Pottenstein: Great, thank you. And Lance, you'll be sorely missed. Scott, Nathan, congratulations.
Robert Pottenstein: I'd like to focus on on the waste bag business.
Robert Pottenstein: And I know that there's a lot of noise in the scanner data, and you mentioned EasyComps for your competitor, but at least just kind of based on the most recent scanner.
Robert Pottenstein: It does look like, just in the data that we see, that you may be losing a little bit of market share, again based on the numbers, and that your competitor may be increasing promos.
Robert Pottenstein: So, love to get your thoughts, if there's been any kind of change in the competitive environment there, or is this just kind of, you know, statistical noise here. And then, you know, somewhat related to that, you mentioned higher resin prices.
Robert Pottenstein: Can you talk a little bit about when that will hit the P&L and how you're thinking about offsetting them? Thank you.
Speaker Change: Thanks Robert, thank you for that compliment. I'll take the first part of the question which is the waste bag business and turn over the resin pricing to Scott from a commodity cost standpoint.
Speaker Change: Our waste bag business is doing well. As I mentioned in the prepared remarks, the Hefty Waste and Storage business unit achieved record quarterly revenue in the third quarter.
Speaker Change: and our share is above 2022 levels. So at this point, we're reading that statistical anomalies occurring right now because of the comparison period.
Speaker Change: We believe the factors contributing to our gains over the years, the brand equity, our strategy and pricing, our product strength and reliability And most importantly our innovation will continue to drive the brand and we're investing in all of those so
Speaker Change: It's also worth to note, as I talked about in our Q2 earnings call, that our total points of distribution have also increased for hefty waste bags.
Speaker Change: So we're very confident in the trends that we've had for the last eight years in hefty waste bags. We'll continue it right now. We've got some comparison points in the numbers and statistics that make it very difficult to read.
Speaker Change: Good morning. On the commodity question, I think you asked about resin and flow through to P&L. I'd say typically we would see changes in those underlying prices of resin flow through to P&L, say, in three to four months.
Speaker Change: When we assessed our Q4 guide, of course, we contemplated that. And then in terms of the tools, as I mentioned in a previous question, really in the short term, it's revolution savings as our target focus to offset those headwinds, and I think that will remain the case.
Speaker Change: Great, thank you very much.
Speaker Change: Thank you.
Speaker Change: Once again to ask a question, you press star 1.
Speaker Change: Our next questions come from the line of Peter Graham with UBS. Please proceed with your questions.
Peter Graham: Thanks, operator. Good morning, everyone. Lance, Scott, Nathan, you know, congratulations to you all. I just wanted to, you know,
Peter Graham: A question on kind of category trends, and I know there were a lot of moving pieces this quarter, shipment timing, but when you think about the retail volume performance in the quarter, you know, maybe just touch on where things came in better, maybe where things were challenged.
Peter Graham: And then as a follow-up to that, maybe asking Nick's question earlier, but just a bit differently, just as we think about the 4Q guidance, it's still pretty wide range as it relates to retail volumes. So maybe, can you just help frame the assumptions that would put you at the higher end versus the lower end in the fourth quarter here?
Speaker Change: Well as I mentioned our prepared remarks and talked about some of the other Q&A our category growth rates
Speaker Change: sequentially improving.
Speaker Change: depending on a specific category, with a range of growth rates that are really very comparable to other household categories and staples. So we're seeing much of the same trends that a lot of other products in our proverbial aisle are also seeing from a household staple standpoint.
Speaker Change: But sequential improvement quarter to quarter despite pressure on the consumers.
Speaker Change: And the second part of the question? I think you're asking about sort of the pacing range of the guide. I think the first place to start is just a reminder.
Speaker Change: of Product Portfolio Optimization. As I think we've said, you know, all along, we see, you know, slight improvements sequentially, quarter by quarter. So the center cut
Speaker Change: of the guide for Q4 would be again a bit of a sequential pickup to plus one. That's how we've been thinking about it. You know all units generally developed about what we thought.
Speaker Change: Got it. Thanks so much. I'll pass it on.
Speaker Change: Our next question is from the line of Brian McNamara with Canaccord Genuity. Please proceed with your question.
Brian McNamara: Hey, good morning. Thanks for taking our questions. With weaker restaurant traffic and more meals consumed at home given the macro environment, I guess we're a bit surprised that retail volumes weren't a little bit better in Reynolds cooking and baking specifically. I understand you expect further category improvement in Q4, but are there any dynamics there worth pointing out whether it be timing or something else?
Speaker Change: Let me start, let me add on. It's a good question. I think one of the things that's affecting what we saw in the Q3 print
Speaker Change: was the estimated $15 million of retail volumes pulled forward from Q2 to Q3. It has a bit to do with retailer promo timing. So I think that's really probably the biggest explanatory variable on the print.
Speaker Change: I have to add to my prepared remarks that we are seeing a modest increase from at-home consumption and I talked a little bit about what we're seeing from a holiday standpoint which will also contribute to that.
Speaker Change: Understood. And then at Investor Day back in March, I think the company expressed a belief that its categories will return to kind of low single-digit volume growth next year, with the company expecting to outperform. Does that remain the expectation here, given the management change and things like that? Anything we should be aware of?
Speaker Change: I think the commentary that we had offered is that the long-term algorithm would be low single-digit growth. I think you know here in October 24 we're not we're not prepared to speak yet specifically to 2025 and you're correct in what we think of as the underlying category growth for the algorithm.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you.
Speaker Change: At this time, we've reached the end of our question and answer session. I'll turn the floor back to Lance Mitchell for closing remarks.
Lance Mitchell: I'll just close by saying thank you to everybody. As I said earlier, we take a lot of time preparing our prepared remarks as well as preparing for Q&A. We really appreciate the time that you take to listen and ask the questions.
Lance Mitchell: And I will tell you, this being my last earnings call, it's bittersweet to say
Lance Mitchell: Thank you for your interest in RCP and thank you for listening in today.
Speaker Change: This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.