Reynolds Consumer Products Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Reynolds Consumer Products second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will 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, sir. Please go ahead.

Thank you. Good afternoon, and thank you for joining us for Reynolds Consumer Products' second quarter 2021 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, Lance will focus on market conditions, our fundamentals, and our 2021 priorities, and Michael will review our quarter and outlook. Together, our remarks will be approximately 15 minutes, then we will 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 law. 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 afternoon 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 note management's remarks today will focus on non-GAAP or adjusted financial measures. A reconciliation of GAAP measures to non-GAAP financial measures is available in earnings release posted under the investor relations heading on our website at ReynoldsConsumerProducts.com. The company has also prepared a few presentation slides and additional supplemental financial information, which are also posted on Reynolds' website under their investor relations heading. This call is being webcast, and an archive of it will also be available on the website. While we would like to answer all of your questions during the question and answer session, in the interest of time, we ask that you ask one question and a follow-up, and rejoin the queue if you have additional questions. Now I'd like to turn the call over to Lance Mitchell.

Thanks, Mark. We delivered a good quarter in a challenging environment thanks to the resilience and dedication of our team. We grew revenue 6% on top of last year's record second quarter revenues and in spite of estimated two percentage point impact from shipment delays from import and other third-party suppliers. We grew both price and volume. We strengthened market shares across our business, and we achieved our earnings forecast in the face of continuing pressure from rising commodity costs. Nonetheless, we are lowering our earnings guide to reflect significant increases in commodity costs since we spoke with you last. Michael will walk through the drivers of this pressure and the pricing actions we are taking to offset material cost increases on an annualized basis. I'm committed to implementing price increases that fully offset material cost increases at a pace and amount appropriate to market conditions. We will also talk about revolution cost savings, which are tracking ahead of plan and remain another significant source of margin recovery. Now let's return to the top line. We expect four factors to drive accelerating revenue growth for RCP over the balance of the year. They are consumer demand, price increases, innovation, and strengthened manufacturing and supply chain capabilities. Together with our market share trends, these drivers demonstrate how our company is getting stronger. First, consumer demand. Household use of our products remains elevated versus pre-pandemic levels. According to our latest Harris poll, which we conducted again in June, everyday use of oil is up nearly five-fold versus pre-pandemic levels, and weekly use of waste bags and food bags is up 40% versus pre-pandemic levels. In addition, the overwhelming majority of respondents in the numerator polling expect to maintain or increase their foil, waste bag, and food bag use beyond 2021. This consumer demand sets up our categories, our brands, and our product portfolio for continued strong performance. On an omni-channel basis, through July 11th, branded dollar share in foil, waste bags, disposable cups, and dishes is up versus year-ago levels and is improving sequentially. Those figures are inclusive of e-commerce, and in track channels, it's the same trend. Branded dollar share in foil, waste bags, and disposable cups and dishes is higher than year-ago levels and improving sequentially. The next driver of our revenue growth is price. Our first and second rounds of pricing were successfully implemented, and we have announced a third round across most of our business, consistent with the timing we shared with you when reporting the first quarter. We expect our third round of pricing to be in effect during the third quarter, resulting in a substantial improvement in profitability as we enter the fourth quarter. Michael will speak more to the timing and results of our pricing actions in a moment. The third driver of our strong growth is innovation. I shared in May that we expect increasing innovation benefits as we move through the year. Our retailer partners are reemphasizing innovation. Some notable new product launches this year are Hefty Fabuloso, launched nationally this spring, and is exceeding our expectations, delivering strong velocities and ACV gains because it combines hefty quality with Colgate-Palmolos Fabuloso scent, a fragrance loved by many long before its debut in waste bags. Our Reynolds Wrap new packaging offers consumers easier-to-use packaging across the Reynolds Wrap portfolio and is becoming a major contributor to our continued category leadership. And Reynolds Wrap nonstick foil is also hosting accelerating distribution gains, providing consumers the nonstick feature they prize for everyday use. Renewable products are a priority for us, too. You've heard me talk about Reynolds Wrap 100% recycled foil and EcoSave disposable tableware, each of which are growing and gaining new distribution. Hefty Renew waste bags are expanding, and our Hefty Energy Bag program, which helps communities divert hard-to-recycle plastics from landfills, just announced an expansion into the Atlanta market. And Presto continues to be a major source of innovation-based revenue. and we're benefiting from store brand innovation in our other business units too. Our fourth growth driver is strengthened manufacturing and supply chain capabilities. Our team continues to employ creativity, discipline, and hard work to resolve countless pain points emerging since the start of the pandemic. As a result, staffing is at or near target levels at most of our facilities, and retailer insights improve further in the quarter. Our company has momentum, and our business model is getting stronger. We have the brands, the product portfolio, category management team, the manufacturing and supply chain capabilities, the pricing action, the cost savings, and most of all, the people to position us for substantial improvement in earnings growth in the fourth quarter and over the long term. I look forward to our future growth and success for our company and our partners.