Reynolds Consumer Products Inc.

consumer products fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's 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. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us on Reynolds Consumer Products' fourth quarter and fiscal year 2022 earnings conference call. Please note that this call is being simultaneously webcast on the investor relations section of the company's corporate website at ReynoldsConsumerProducts.com. Our earnings press release and accompanying presentation slides are also available on the website. With me on the call today are Lance Mitchell, our President and Chief Executive Officer, and Michael Graham, our Chief Financial Officer. For our agenda this morning, Lance will focus his remarks on fourth quarter performance and the Reynolds cooking and baking recovery plan, as well as discussion of our performance drivers, while Michael will review our fourth quarter and full year financials, as well as our 2023 outlook. Following prepared remarks, we will open the call for questions. Before we begin, I would like to provide a few reminders. First, this morning's discussion may contain forward-looking statements based on current expectations and beliefs. These statements are subject to risks, uncertainties, and changes in circumstances that could cause actual results and outcomes to differ materially from those described today. Please refer to our risk factors section in our SEC filings, including our annual report on Form 10-K and our quarterly report on Form 10-Q. Please note the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after the call. Second, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these GAAP to non-GAAP financial measures are available in our earnings press release, investor presentation deck, and Form 10-K, copies of which can be found on the investor relations section of our website. Now, I'd like to turn the call over to Lance Mitchell.

Lance Mitchell Thank you, Mark. Thanks to our people, our integrated brand and store brand business model, and our unwavering commitment to category leadership, we made strong progress on our key initiatives in 2022. We entered the year 2023 with increased market share in our largest categories, service returned to pre-pandemic levels, and profitability restored in three of our four business segments. However, as you can see from our fourth quarter results, the Reynolds cooking and baking business segment performance fell short of our expectations. On our earnings call in November, we reported that the Reynolds cooking and baking business segment entered the fourth quarter having experienced periods of unplanned equipment downtime, resulting in additional manufacturing costs and impacting our ability to adequately supply customers. Equipment reliability remained challenging in the fourth quarter, driving inefficiencies and manufacturing costs higher than expected, while also driving continued higher aluminum costs. These factors drove the EBITDA shortfall versus the expectations we shared with you in November. In addition, while we were successful driving Reynolds RAP share to the highest quarterly level for the year, household oil consumption was weaker than expected, also contributing to lower than anticipated net revenues for the quarter. Now, let's turn to our plan to return Reynolds cooking and baking to historical levels of profitability. And as I do so, I want you to know that we enter 2023 with a thorough understanding of what has been impeding Reynolds cooking and baking's margin recovery, as well as the team and resources in place working to correct the issues impacting that business segment. Key actions underpinning the Reynolds Recovery Plan includes the following. Management changes, including several key operational leadership roles. Redesign of equipment reliability processes and practices, incorporating benchmarks and input from experts in operational excellence. Return to pre-pandemic preventive maintenance disciplines. And new initiatives focused on improving operational excellence, including implementation of condition-based monitoring and predictive maintenance, cross-functional teams focused on critical asset efficiencies, investments aimed at improving equipment reliability and performance, and increased technical expertise alongside key production assets. We believe that these and all the improvements we are making to the Reynolds cooking and baking operations will not only drive a major improvement in manufacturing efficiencies, but also a decline in our use of the higher cost supplemental purchases of milled aluminum that I mentioned previously. Michael will speak more to our expectations for phasing the Reynolds cooking and baking business segment earnings recovery. Now let's review key drivers of our performance overall. Pricing, consumer demand, innovation, and manufacturing and supply chain capabilities. First, pricing. We continue to selectively increase trade promotions, which are expected to be up in 2023 versus 2022 levels. We also remain watchful of commodity trends, and the cost of aluminum and resin is up versus end of December levels. On balance, I would describe the pricing environment as far more stable than it was either last year or in 2021. Second, Consumer demand. Our categories have settled into a new normal. And in 2023, we expect a return to household formation as our main driver of growth, offset by inflation's continued impact on consumption and lapping of elevated demand in the first several months of 2022. We also enter 2023 in a position of strong category leadership. Consumption in many of our categories is up 5% or more since 2019, and we have built market share in our largest categories and in multiple adjacencies over this period. We've also gained additional share in these categories in 2022. Reynolds Wraps market share gains accelerated in the second half of 2022, driven by promotions to key price points, narrowing price gaps to private label, and consumers' appreciation of Reynolds Wrap performance advantages by comparison to private label foil. In waste bags, Hefty's household penetration increased in 2022. Hefty waste bag brand increased buyers in almost every generational group, especially among millennials. And in disposable tableware, Hefty again gained share in 2022, driven by disposable plates, including our rapidly growing Hefty EcoSave line. Our third performance driver is innovation. Innovation remained a major source of volume in 2022. In 2023, we plan to continue leaning into this success by expanding distribution across a number of high-velocity products while also introducing multiple major new products and increasing our emphasis on sustainable solutions. In Reynolds Cooking and Baking, we plan to increase distribution of Reynolds Wrap Pitmaster Foil and Reynolds Kitchen's Air Fryer Liners, among others, while also introducing Reynolds Kitchen's Stay Flat Parchment and other products designed to meet the increase in cooking and baking among young adults and other major segments of the population. In waste and storage, we plan further distribution gains for our portfolio of Hefty Fabuloso products, including new Hefty 4- to 8-gallon drawstring trash bags. And we're excited to announce that Hefty Trash Bags is launching a new Fabuloso Refreshing Lemon scent in the first quarter. In dollar sales, Refreshing Lemon is the number two scent of Fabuloso. multiple-purpose cleaners, and lemon-citrus-setted waste bags are growing at two times the rate of the larger waste bag category. We're also doing a lot in the area of sustainable solutions. Reynolds kitchen butcher paper and wax paper are now compostable. Hefty EcoSave continues to grow rapidly with additional strong growth expected driven by SKU expansion, further distribution gains, and continuing strong consumer demand. Early results for the hefty compostable print and paper plates also gives us confidence in our expansion plans for this new solution. And in waste and storage, a wide range of sustainable products are lined up for commercialization. For example, our recently launched private label food bag made from 20% renewable plant and ocean materials is off to a strong start. Manufacturing and supply chain is our fourth driver of performance. Our entire organization is focused on the execution of the Reynolds cooking and baking business segment recovery plan. In addition, we've expanded the scope of revolution cost savings, giving us confidence in another year of at least 200 basis points of incremental margin as a source of funds for reinvestment and margin expansion. Legacy revolution programs still have considerable runways. and we are undertaking new procurement and operations-related programs in 2023 as well. Before I turn the call over to Michael and your questions, I'd like to leave you with the following. Our people have responded to the many opportunities and challenges of the last three years with exceptional resilience and resolve to serve our customers, combat inflation, and leverage our integrated brand and store brand business model to help consumers simplify their daily lives and make our business stronger. Our market share, our category consumption levels, and full recovery of pre-pandemic profitability in three of our four business segments are proof points of our success. Looking forward, the Reynolds recovery plan is in place, and I have the utmost confidence in our plan and our ability to deliver a strong recovery of that segment's profitability. I'm extremely proud of the entire RCP team. and we look forward to earnings growth in 2023 and the years to come. With that, over to you, Michael. Thank you, Lance, and good morning, everyone.