Reynolds Consumer Products Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Reynolds Consumer Products Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there'll be a question and answer session. If anyone should require operator assistance, please press star zero on your telephone keypad. Please be advised that today's call is being recorded. I would now like to hand the conference over to your speaker today, Mark Swartz. Thank you. Please go ahead.

Good morning, and thank you for joining us for Reynolds Consumer Products' third 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 announcements. 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 security 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. These refer to our annual report on Form 10-K and other reports filed from time to time with the Securities and Exchange Commission and our 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 post under the investor relations heading on our website at rentalsconsumerproducts.com. We have also prepared a few presentation slides and additional supplemental financial information which are posted on our website under the investor relations heading. This call is being webcast and an archive of it will also be available on the website. Well, 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. And 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. Third quarter highlights include the following. Household foil and waste bag volume responded favorably to increased advertising and promotions, and in-store features and displays. Reynolds and Hefti gained share in waste bags, household oil, and disposable plates. Private label gained share in press-to-close food bags and disposable party cups, where we have a significant private label presence. We implemented previously announced pricing to offset additional cost increases We accelerated revolution cost savings while also implementing new programs for savings. And as a result, we closed the gap between pricing and cost increases. Our category leadership and agility drove these achievements while setting the stage for substantial margin expansion and profit growth in the fourth quarter and 2023. Before talking about performance drivers, I'd like to share a few thoughts about the economic environment. and our market position. We assume increased elasticities going forward, which contributes to our fourth quarter revenue expectations now being at the low end of our previous range. That's obviously a headwind, but one of our strengths is our ability to adapt. And, as I said, we are pleased with how consumption is responding to our pickup and promotions, advertising, and in-store features and displays. I think it's also worth remembering that our integrated brand and store brand model is a competitive advantage. Reynolds and Hefty represent a large share of our categories, and our private label portfolio complements our brands in multiple categories. Finally, as we enter the holiday season and develop our plans for next year, it's important to know that that increased cooking and working at home have driven many of our categories to levels that are beyond those implied by the last three years of household formation. That's clear from our proprietary research, and it's validated by the standard data. According to IRI, equivalent volumes of waste bags, disposable party cups, parchment paper, bakeware, and slow cooker liners have all grown in excess of 5% since 2019. And some of these categories are now more than 10% larger than they were prior to the pandemic. Now let's turn to the main drivers of our performance, pricing, consumer demand, innovation, and manufacturing and supply chain capabilities. In the area of pricing, recently announced increases in disposable tableware and waste bags have been implemented as planned in September and October, bringing annualized pricing to nearly $1 billion since mid-2020. We are reinvesting a portion of these increases in additional advertising and promotion, and consumer demand for our categories and product portfolio is responding to our increases. In household oil, in June, we began increasing promotions features and displays, and are directing more advertising dollars to younger consumers. These measures have contributed to improving household FOIL trends, along with increases in rental draft share of the FOIL category. We and our retail partners also increased promotions further in October and plan to continue similar promotions this holiday season. In waste and food bags, hefty share trends improved and a share of private label remains strong. and disposable tableware, we gained share and maintained a substantial discount to paper plates while also implementing the additional pricing on disposable plates.