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spk08: 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 will be a question and answer session. If anyone should require operator 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 Swartzberg. Thank you. Please go ahead.
spk12: 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, Lance will focus on market conditions and our fundamentals, 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 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 action 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. The reconciliation of GAAP measures to non-GAAP financial measures is available in the 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 posted on Reynolds' website under the Investor Relations heading. This call is being webcast and an archive of it will also be available on the 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.
spk02: Thanks, Mark. We started the year with another solid quarter in 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 a record first quarter of net revenues, strong volume growth in our hefty waste and 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 in 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 supply chain capabilities, it's worth remembering that our portfolio is well-positioned not only for shifts in 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. Hand in hand with those increases, we've seen an increase in elasticity in some of our categories, particularly for foil. but the degree varies 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 is a headwind, and one we are addressing through a series of measures, including higher trade and advertising. It's important to 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. In many of our other categories, including parchment paper, waste bags, plastic party cups, consumption continues growing at faster than average annual rates than it did prior to the pandemic. Those are trends you'll see in the syndicated data, and it's evident in our research. According to a late April report from Kantar, consumers are eating out less often to compensate for inflation. And in 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 track channels, RCP branded dollar share and volume share in waste bags, disposable tableware, Flow 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 Fabuloso waste bags, hefty EcoSave disposable tableware remain standouts, recruiting new users and gaining distribution. Reynolds Kitchen's air fryer liners, a new Hefty Fabuloso scent and waste bags, and private label stand and fill press to close food bags are off to strong starts. And our new product pipeline is robust with upcoming introductions including Reynolds Kitchen's compostable wax paper and a number of new branded products from Hefty Waste and Storage and Hefty Tableware. And finally, Hefty Energy Bag is growing. strongly in existing geographies, and we plan 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 costs, but also knew 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. I have enormous confidence in our people and see tremendous potential for Reynolds consumer products. With that, over to you, Michael.
spk04: Thanks, Lance, and good morning, everyone. I will 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 EBITDA for the first quarter was $112 million, down 20% versus last year's first quarter adjusted EBITDA of $140 million, driven by higher material, manufacturing, logistics, and advertising costs, as well as lower volume, which was significantly offset by price increases. Adjusted earnings per share for the quarter was $0.26. 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 and storage, driven by strong demand and easing of staffing and logistics related challenges. Volume grew 10% in hefty tableware, driven by strength across our hefty and store brand portfolio. Volume declined 14% in 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 reroll sales. 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% on $873 million in the prior year. Adjusted EBITDA to be in the range of $110 million to $120 million. Adjusted EPS to be in the range of 23 to 27 cents 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 $3,556,000,000 in 2021. Adjusted EBITDA to be near the low end of the range of $615,000,000 to $655,000,000. Adjusted EPS to be near the low end of the range of $1.56 to $1.70 per share. Net debt to be approximately $1.9 to $2.0 billion at December 31st, 2022. As Lance said, we do expect a pickup in elasticity, particularly in FOIL, but that elasticity remains below pre-pandemic levels. Reopenings 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 the 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 assume rates for key commodities remain stable by comparison to the end of April levels and estimate total additional cost pressures of approximately $450 million for the year. up $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 continued investments in automation and other revolution programs. As it relates to phasing, you will recall that when we reported results in early February, we expected previous implemented price increases in prior year price comparisons to drive sequentially slower year-on-year top-line growth as the year progressed. 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. De-leverage with a target ratio of two to two and a half 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.
spk12: Thanks, Michael. As I turn it over to the operator for the questions, I'd like to remind you that you ask one question and a follow-up, and then rejoin the queue if you have additional questions. Operator?
spk08: Thank you. If you'd like to ask a question at this time, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 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 that we may address questions for as many participants as possible, we ask you to please limit yourself to one question, one follow-up question. You may re-queue for additional questions, and it will be taken as time allows.
spk11: One moment, please, while we assemble the queue. Thank you. And our first question comes from the line of Camille Garguala with Credit Suisse.
spk08: Please proceed with your questions.
spk10: 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?
spk11: Hi, Camille. This is Lance. Hi, Lance.
spk02: The first quarter household oil category consumption was down 8%. The remaining shortfall of our Q1 volume was driven by inventory adjustments at retailers. So approximately half was event-driven and half due to some consumer trends. The consumer trends in the household oil category defined was driven by a lot of numerous factors, including changes to use occasions, shifts to smaller footages, shifts from heavy duty to everyday gauge foil, and some trade-down from brand to private label. So people aren't leaving the category, but changing item purchases. And our guide does contemplate the guides defined in Q2, and then similar consumer consumptions in the second half. We are increasing our investments in higher trade promotions and advertising to encourage new use occasions and adjust price points to drive growth.
spk11: And we're also accelerating our revolution initiatives that contribute to earnings growth.
spk10: Got it. Can I just follow up on maybe one of those comments on 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.
spk11: Good morning, Camille. This is Mark, and good morning, everyone.
spk12: So, retailer inventory adjustments were, as you heard Lance say, what I'll call a thing that we worked through in the quarter, and of course, we built that into our guide. I think when you look forward, you should think that our guide anticipates there'll be a better match between shipments and consumer takeaway, and that that headwind won't be the kind of headwind it was in the first quarter.
spk11: Got it. Perfect. Thank you.
spk08: Our next question is from the line of Nick Mody with RBC Capital Markets. Please proceed with your questions.
spk00: 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 – you know, price gap situations right now, you know, and how you feel about them at this moment given all the pricing. Thanks.
spk02: Yeah, two-part question. So let me handle the share first. We're doing extremely well across the vast majority of our product lines and categories. Across our portfolio, our brand has gained dollar and EQ share in 70% in the categories in which we operate. You know, so, the vast majority of the products. In a number of categories, we continue to see category volumes continue to grow faster than average annual rates than we saw prior to the pandemic. In cooking and baking, we're seeing three-year CAGRs ranging from mid-single digits to 10% to 11%, for example, in parchment paper. So in the cooking and baking segment, it's household oil that's been challenged from a growth standpoint in the quarter. Waste and storage, we're seeing three-year volume CAGRs in the 2% to 3% for waste bags. And at tableware, we're seeing CAGRs in 5% to 6% for plastic party cups. So our hefty business units continue to benefit from a combination of category, demand, and our continued share growth and have continued significant potential for continued growth. On the price gap standpoint, across the portfolio, it's represented by those share gains. We're pleased with price gaps with the exception of household floor. And as I mentioned a moment ago in the first question, we're changing our trade strategy to adjust price points and price gaps across the portfolio.
spk11: Thank you.
spk08: Our next question is from the line of Rob Ottenstein with Evercore. Please proceed with your questions.
spk07: Great, thank you. And a couple of questions. One, I want to follow up on the share question in a little bit more detail. Obviously, you're doing very well. Is there any way to kind of dissect your market share gains and between how much is driven by innovation, how much is driven by greater availability, displays, anything along those lines? 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, any competitive reactions? So that's kind of the first question. And then it bleeds into the second question a little bit, which is kind of what are your second quarter volume assumptions, and does those assumptions assume continued share gains or losses? How do you see that developing? Thank you.
spk02: Well, I'll answer the first part. We'll let MG do the second part as it relates to the second quarter outlook. As it relates to share gains across the portfolio, first of all, two points of our revenue growth in the quarter came from innovations. Those occurred across all four segments. It was driven pretty balanced across all four of our business segments to get that two-point gain. In my opening remarks, I talked about several of those products that were driving those gains. The balance of the gains has come from distribution as well as just consumer habits continuing post-pandemic. The consumer habits of continuing to stay home more frequently. 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 service-related issues. So our research tells us that people are still spending time at home, and that drives use occasions for our products. So that mic on Q2.
spk04: Yeah, 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 rental cooking and baking. Looking forward, we expect better alignment between shipments and household consumptions now that retailer inventories have been adjusted. Mark just spoke to that a bit. And in FOIL, we expect declines in household consumption to continue down at similar rates to the estimated 7% decline that we saw in the first quarter.
spk11: We are also increasing trade promotions and advertising to drive growth in our global business. Thank you.
spk08: Thank you. Our next question is from the line of Bill Chappell with Truist Securities. Please receive your questions.
spk09: Hey, good morning, guys. This is Steven Lango 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 it into, like, buckets of which is impacting you the most of what you're seeing? Thank you.
spk02: The $400,000 to $750,000 as the drivers of that experimental system.
spk11: Yeah, so when I think about that cost, materials are approximately two-thirds of the COGS.
spk04: And then, so that's approximately about 45 points of those from commodities. Aluminum and polyethylene are clearly our largest, and followed by polystyrene and other resins. So our annualized base is about $0.05 increase in commodities has the following impact. You know, aluminum has about $20 million, polyethylene about $25 to $30 million, and polystyrene about $15 million.
spk11: Great. Thank you very much.
spk08: Thank you. The next question is from the line of Andrea Teixeira with J.P. Morgan. Please proceed with your question.
spk06: Good morning. So my question is on the cost savings to mitigate that 450. I think the resolution is probably part of that, and if you can update us on that. And my second one is just a clarification on the shipments against retail inventory. Is that mostly on the cooking and baking segment, or you're seeing across the board? And just to clarify also, if the timing you expect, what's embedded in your second quarter is just in the second quarter, and then we should be seeing that clear in the second half of the year. Thank you.
spk02: Yeah, I'll answer the second part of that question first, Andrea. The retailer inventory was exclusively in household. We didn't see that in any of our other products or categories at UC. specific to that product line within the cooking and baking segment. We are expecting there to be some additional adjustments to retailer inventory in the second quarter, and then it'll be cleared out by the time we get to the second half of the year. There was a lot of inventory that they had taken in, and it's a high dollar amount of inventory, so they're carefully managing the dollars of the inventory they're carrying to retail as well, because working capital. I'll turn the first part of the question over to Mike.
spk04: Yeah, so as it relates to revolution, and you guys probably recall this. We talked about this a bit in the last quarter. So we set out to deliver a little more than two points of margin improvement through revolution cost savings in 2021. So that's a little more than about $70 billion, and we beat that target. We're planning to deliver incremental savings in that range again this year. So that's, I guess, what you could expect to see from a revolution standpoint.
spk06: Thanks, Michael. Sorry, I couldn't hear you. It's $70 million, right?
spk04: Yes.
spk06: Okay. Thank you.
spk02: And I would also add, and we said this in Michael's 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. That's across all four segments. It is specifically higher in tableware at Reynolds where we saw the bigger cost increases, but we did take pricing in all four segments.
spk06: Thank you both. I'll pass it on.
spk08: Thank you. The next question is from the line of Lauren Lieberman with Barclays. Please receive your questions.
spk05: Great. Thanks. Good morning. The incremental pricing is actually exactly what I had wanted to ask about. So you said it's in all categories it's been announced but will be implemented during second quarter. I guess I was curious early, late in the quarter, what are we talking about? And what's your sense for how this aligns or doesn't with what competitors are doing? I can preempt my follow-up. I think particularly in the trash segment, I was curious where things stood now in terms of 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 stood now and how you would describe price gaps between you and GLAAD in particular versus where they were prior to the pandemic. Thank you.
spk11: Well, the pricing that we've taken is across the board.
spk02: It is varied in timing. The cooking and baking increase is in May. It actually is effective May 7th. The tableware and the hefty price increases in the minor one in Presto occurs in June. The hefty waste and storage increase was Consistent with what we're seeing from competitors from an amount and timing standpoint.
spk05: Okay, great. And then what about the price gap dynamic now versus where you described things were pre-pandemic? Have they caught up?
spk02: We're pleased with the price gaps across our systems. In our categories, we would be assessing the household soil at this point in time. We've got to make some adjustments there. Hefty slider food bags, we're seeing some trade down from the slider food bag segment to press to close. So we're looking at some adjustments there, primarily through trade, to ensure the price gaps there are satisfactory to ensure continued growth. And we are evaluating another hefty waste bag price increase that would be effective in the next seven
spk05: in addition to what is announced already.
spk11: Yeah, that would be in addition to what is announced already.
spk05: Okay.
spk11: Lauren, this is Mark.
spk12: I want to build on what Lance said because it pertains to a question Michael just answered. The level of cost increase, of course, we got it to $450 for the year versus $400 in our prior guide. We just talked through the pricing actions we're undertaking. That incremental $50 is a function of higher domestic and import freight costs. It's increased commodity costs, particularly in the area of 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 and third-party supplier costs. So that's the origin, if you will, of the incremental price increases that Lance just talked about.
spk05: Okay, great. All right, thank you.
spk08: Thank you. As a reminder, to ask a question today, you may press star 1 from your telephone keypad. So that we may address as many questions as possible, we ask you to please leave yourself to one question and one follow-up question. 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 receive your questions.
spk01: Hey, good morning, everyone. Hope you're doing well. So I just wanted to ask about gross margin, both for the year and how we should think about phasing. You know, maybe just to start, I know, Michael, you previously expected gross margin to be up 100 basis points, you know, year over year for 2022. One Q seemed to be a bit tougher, and I guess the implied EBITDA guidance in Q2 seems to embed another challenging quarter. So just, you know, any thoughts on the full year outlook and then maybe specifically how we should think about, you know, Q2 in the back half of the year?
spk04: Just to reiterate, if you think about our gross margins that we were challenged with in Q1, the lion's share of that was really driven by commodities, about 11 points. Then a little bit about the denominator change, and we've talked about the math in the past. That's worth about four points. Logistics and other manufacturing costs is about two points, and scale is another two points. That was all, you know, offset to some degree by a pricing action. So, net-net, that's overall. As we look forward, obviously, you know, we've taken more pricing. We do see commodity costs start to taper off, and so a combination of that pricing and commodity costs starting to taper off will set us up for a benefit. the overall manufacturing logistic cost I would anticipate is gonna be pretty consistent. So when I think about overall margins, I think that you'll see a little bit stronger result going forward, primarily given the fact that pricing is gonna continue where you see commodity costs taper off a bit.
spk01: 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, you know, I know you're taking an incremental pricing, but you know, the 68% growth in Q2, it just seems to imply that you expect mid-teens top line growth, you know, 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 pricing on top of the low double digits you're cycling a year ago. So I'm just trying to understand, you know, how comfortable are you that this level of pricing, when you think it on like a multi-year period, that you will still see elasticities above pre-pandemic levels.
spk11: So let me just talk to you about a couple of components, right?
spk04: One is, you know, in the second half, we do expect some volume acceleration. And this is driven by the increased traits, then increasing advertising and strong innovation trends, right? You know, you'll also recall that company bonds are flat in Q3 of 2021. We're posting a minus 4%, which of course is our business segment that is showing great strength. So, I mean, in addition to some of the other actions, I do want you to take into consideration some of the bond accelerations that we expect in the second half.
spk02: But to add to that, we have built in some expectation of elasticities in the
spk11: 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.
spk08: Our next question is from the line of Mark Astorchan with Seafull. Please proceed with your questions.
spk03: Thanks, and good morning, everyone. I wanted to ask about, unsurprisingly, pricing in commodities. Now, if prices kind of stay where they are from a commodity standpoint, could you maybe talk a bit about how historically you've either given 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 growth profit dollars in 23?
spk02: I'll take the first part of that question, then Michael can talk about the full gross margin dollars part of the equation. From a pricing standpoint, when pricing goes up and commodities come down, historically we have been able to margin up and recover margins across our portfolio. We do use that opportunity to correct price points, and we do that through not just individual promotions on a specified period of time, but also by things called temporary TPRs, which are more permanent-type price reductions. But, you know, to 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 in the household oil category to adjust pricing, not just through promotionals, but to ensure that we're getting the right price points. You know, aluminum had gone up to almost $2 a pound in March. It was just short of that. At one point, it actually crossed $2 a pound. It spried it at $1.67. So we have seen a 30% type of reduction in aluminum in the last... 30 plus days, and it presents an opportunity for us as we go forward now to the margin shop and really use that to correct the price line. And Michael, you want to talk about gross margin dollars?
spk04: Yeah, we've talked about this before. We've talked about this in context of restoring our pre-pandemic profitability. So just to kind of give you sort of an understanding, we expect gross profit, you and we and all of us expect gross profit dollars to grow in line with volume. all else being equal. To illustrate this, you know, for 2022, if we grow 2019 gross profit dollars by $888 million, so in other words, 8%, and that's basically what our volume has kind of changed, you would expect an implied gross profit of about $950 million. So if we look for it, 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 challenges. So that's a focus area for us going forward. We continue to make improvements 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 to understand why people are changing and turning over at the rates we're having. 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 to get product out the door efficiently. The other big thing that probably won't happen in this year, but hopefully we'll see some early signs of that, is the competitive pricing part in the waste and 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. But if competition reacts appropriately to the overall increases, I think there's an opportunity here that we'll see some additional recovery on gross margins as well.
spk03: Great. Thank you, guys.
spk08: Thank you. As a reminder, to ask a question today, please press star 1 from your telephone keypad, and please limit yourself to one question and one follow-up question, and re-queue for any additional questions. Thank you.
spk11: We'll pause a moment to assemble the queue.
spk08: Our next question is a follow-up from the line of Andrea Teixeira with J.P. Morgan. Please receive your question.
spk06: Thank you for taking my follow-up. Michael, you mentioned a little bit of the aluminum cost and then the 20% that you're seeing sequentially and potentially coming back. I just want to clarify the profit dollars. I think you mentioned something like 50. I don't know if you overheard it correctly. So if you can, number one, kind of give us an idea how you're contracted for aluminum into the rest of the year and potentially into 2023, if you're being opportunistic about this reduction or waiting a bit more to see how it lands. And then on the profitability, I just want to clarify, you said you want to go back to that pre-pandemic profitability, and what is the timeframe?
spk11: Well, you know, if we see, let me start with the second part of your question.
spk04: If we see commodity costs update, you know, we could very well see this happening as early as 2023. I mean, but that requires commodity costs to abate and, you know, and inflationary 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 don't. disconnected a little bit here on that one. So can you help me on the first part of your question?
spk06: Yeah, it was just how you're seeing, like, you know, it was related to aluminum anyways, but I was just trying to see how you're contracted into the 2023 cost for now because of the aluminum decline.
spk04: Well, you know, I mean, aluminum prices and rates, I mean, that's pretty, that is not something that we're really locked in from a contractual basis. It's market-based. So, as those aluminum rates come down, we get the benefit around that, recognizing the fact that, you know, there's a flow through of inventory, and then we do have a, you know, side room model of inventory. So, as those rates come down and we work through our inventory position, you'll start to see the benefits of that flow through from aluminum perspective. And I think you probably know aluminum rates have come down recently.
spk06: Okay, that's fair. Thank you.
spk08: Thank you. Our final question will be coming from the line of Rob Ottenstein with Evercore. Please receive your questions.
spk07: Yeah, I was just wondering if you could talk a little bit about the dynamic that emerging on the aluminum side and better understand because you don't really have any branded competitors so this is being driven presumably by by the retailers and you know maybe you could talk a little bit about you know your discussions with retailers on 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, you know, volatility in the prices? And, you know, maybe they haven't adjusted in a rational way or just any color around how the category is developing would be helpful. Thank you.
spk02: Yeah, it's been a very dynamic environment for particularly the last year across the category, and it varies by channel. So we have worked on this by retailer by retailer basis, and we're seeing the retailers working through it with us. We are the only brand in the category, and as I described in I think the first question that came through, There's a lot of consumer behavior changes that are occurring because of the higher prices and costs, you know, 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 gaps to the private layer. The best I can describe is they're working with us in a partnership way, and it's in a very dynamic environment.
spk11: Thank you.
spk08: Thank you. At this time, we've reached the end of our question and answer session. I'll now turn the call over to Lance Mitchell for closing remarks.
spk02: Thank you for your questions, and we appreciate your time this morning. I'll remind you that our business is strong. We are 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 really challenging times. Thank you.
spk08: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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