Reynolds Consumer Products Inc.

Greetings and welcome to Reynolds Consumer Products Inc. second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mark Schwartzberg, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us for Reynolds Consumer Products' second 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 marketing conditions and our fundamentals, and Michael will review our quarter and outlook. Together, our remarks will be approximately 20 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 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 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 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.

Thank you, Mark. We delivered another quarter in line with our earnings expectations in what continues to be a very dynamic environment. First half and second quarter highlights include continued share strength across our business, share gains in branded waste bags, branded disposable tableware, and multiple cooking and baking categories, a return to shipments aligned with consumption, further narrowing of the price to cost gap across most of our business, including a further improvement in waste bag profitability. Delivery and expansion of revolution savings. A substantial slowdown in foil consumption has been challenging. However, category declines have been moderating since late June, our branded volume share is growing again, and a number of corrective actions are underway to address this issue. In addition, lower cost inventory has a positive impact on foil margins as we head into the holiday season. I will go into our FOIL plans and other revenue drivers in a moment. But before I do, I want to highlight a few things about the environment and our unique advantages and position within it. Our category advisors are diligently working with our retail partners to support our categories and drive traffic. And as you would expect, consumer behavior during these dynamic times is top of mind. That means we are having numerous discussions about the optimum balance of brands and private label, promotions, pack sizes, and features and displays. I also want to point out that our price leadership and the cumulative value of our pricing actions, together with declines in aluminum and polyethylene rates, are producing a closer alignment between price and cost, which we have been pursuing since late 2020. This translates into an anticipated margin expansion and earnings growth in the fourth quarter and a significant increase in flexibility to invest in trade, advertising, and other category drivers as we plan for the holidays and next year. Michael will elaborate on that shortly. Now, let's talk about our main drivers of growth, pricing, consumer demand, innovation, and manufacturing and supply chain capabilities. In the area of pricing, We began increasing foil promotions in June, motivated by the historically strong impact of promotions, and we are encouraged by the consumer and retail response. We are implementing additional promotional activity over the balance of the year, including a substantial step up in October in order to drive holiday-related demand. We've announced another round of pricing for our tableware products to offset the additional cost increases for polystyrene resin, and an additional increase for hefty brown waste bags. In terms of elasticity, the FOIL category is demonstrating the largest increase in elasticity, prompting many of our actions. Our other categories are also seeing increased elasticity by comparison to what we were seeing earlier in the year, and we are watching them all closely. Changes in consumer consumption in our categories has been more dynamic than we have seen historically. we will continue to respond with corrective measures. Turning to consumer demand, as you know, our products are in 95% of U.S. households, and we have benefited from the changes in habits triggered by the pandemic. We've been meeting these changes in habits, and as I said earlier, we are uniquely positioned to respond to new opportunities as economic conditions change. We rely on consumer market research which allows us to better understand who is driving our categories and their needs. We stepped up these capabilities during the pandemic and made a number of discoveries. For example, an increased portion of men and younger consumers are more active in the kitchen and home than they were prior to the pandemic. That's a major opportunity in any economic environment. And here are a few examples of how we're responding to it in this environment. In FOIL, as I said, we're stepping up promotions. allowing us to hit lower retail price points and increase purchase frequency. We're also increasing features and displays to drive usage and targeting advertising to reach younger consumers. In waste and storage, we're seeing strong back-to-school demand in branded and private label products and driving the hefty brand through innovation, larger pack sizes, distribution gains, and additional advertising. In disposable tableware, we're driving party cups, with a particular emphasis on the club channel. The third driver of our growth is innovation. Our standout innovations continue to be Hefty Fabuloso and Hefty EcoSave, each of which continues to demonstrate high velocity while also gaining distribution. Other notable contributors in the quarter and year-to-date include new Hefty Fabuloso 4- and 8-gallon waste bags for use in additional rooms of the house and private label waste bags with odor control. Hefty Fabuloso and Hefty EcoSave are delivering as major platforms for innovation, and we plan to expand them. And in terms of new innovation, we just introduced Hefty Compostable Printed Paper Plates, Reynolds Kitchen Compostable Wax Paper, and other Reynolds innovations are in the pipeline, and we plan to introduce a wide range of branded and private label products offering sustainable solutions that are wins for consumers, retailers, and RCP alike. Our fourth driver is manufacturing and supply chain capabilities. Staffing and supply chain conditions continue to be challenging, but they are stabilizing and much improved versus late 2020 and 2021 levels. Before I pass the call to Michael, I'd like to leave you with the following. We're well positioned for changing economic conditions, and we're responding with promotions, pack sizes, advertising, and other pieces of the marketing mix to meet our consumers' increased emphasis on affordability. The gap between our pricing and material manufacturing and logistics cost increases is nearly closed, and we are on course for margin expansion and earnings growth in the fourth quarter of 2023. This means not only a return to earnings growth, but also increased flexibility to invest in our categories and drive future innovation and consumption. We are executing with excellence in our mission to simplify daily life so consumers can enjoy what matters most. I'm extremely proud of the RCP team as we navigate through these dynamic times. We are well positioned to realize the benefits of the actions we've taken over the last two years. With that, over to you, Michael.