Greetings, and welcome to the Reynolds Consumer Products, Inc. Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Swartzberg, Vice President of Investor Relations. Thank you, sir. You may now begin.

Thank you, operator. Good morning, and thank you for joining us on Reynolds Consumer Products' second quarter earnings conference call. Please note that this call is being webcast on the Investor Relations section of our corporate website at reynoldsconsumerproducts.com. Our earnings press release and presentation slides are also available. With me on the call today are Lance Mitchell, our President and Chief Executive Officer; and Scott Huckins, our Chief Financial Officer. Following prepared remarks, we will open the call for your question-and-answer session. Before we begin, I would like to remind you that this morning's discussion will contain forward-looking statements which 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 the Risk Factors section in our SEC filings. The company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after the call. 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 on Form 10-Q, which can be found on the Investor Relations section of our site. Now I'd like to turn the call over to Lance.

Thank you, Mark, and good morning, everyone. Our business is performing well. We had our best second quarter earnings in our history as a public company, with the exception of the pandemic-fueled second quarter of 2020. We exceeded our second quarter revenue guide, increasing retail revenue by 1%, as we outperformed our categories and the categories moderately outperformed our expectations. We continue to drive product innovation in household essentials, providing consumers with new product benefits and expanding our range of affordable sustainable solutions. We are actively recruiting Gen Z and Millennial consumers, who now represent the majority of the U.S. workforce. We have identified and unlocked additional Reyvolution cost savings and our ongoing commitment to reduce operational costs. We delivered earnings exceeding our second quarter and first half objectives, further demonstrating the advantage of our business model and the effectiveness of our people in a dynamic consumer environment. Before I review each business's performance, I'd like to first comment on our retail trends overall, our product innovation pipeline, and our plans for driving Reyvolution cost savings. We drove sequentially improving retail trends in the second quarter and did so in an environment characterized by declines in personal savings, record levels of household debt, and decreases in year-to-date SNAP funding. Our products are affordable and convenient, making eating at home even more attractive when away-from-home consumption is pressured. We are effectively leveraging our business model and category leadership together with our retail partners. We're also accelerating innovation across RCP and increasing speed to market, expanding the range of brand and store brand products to be introduced over the next three years and adding to our growing portfolio of sustainable offerings, putting us on track to achieve our commitment for providing sustainable solutions in all of our categories by 2025. This doesn't happen overnight and reflects our success in R&D, upgrading innovation processes, further prioritization of new products, commercial potential, and our ongoing work with our retail partners to deliver on opportunities that consumers value. Considering our trends, our competitive advantages, and the programs that we are implementing to continue meeting our categories, we expect further modest improvement in our retail volumes on a like-for-like basis in the second half after adjusting for shipment timing and product portfolio optimization. In terms of operational excellence, we've identified significant Reyvolution savings beyond 2024 in each of our businesses in the areas of procurement, manufacturing, and supply chain. These savings continue to represent a major source of earnings growth and funds for reinvestment in our categories and leadership positions. I'll now review our performance and outlook by business. The Reynolds Cooking & Baking business delivered another strong quarter, and we're building on the business's commercial, operational, and financial success. Reynolds Wrap gained additional share in the household foil category. Reynolds Kitchen Parchment continued to grow reflecting the strength of the brand, successful innovation, and consumers' increasing usage of parchment for cooking and baking. We drove additional recruitment of younger cooks with our Chef's Kiss multiple product advertising campaign and maintained a high level of operational stability and advanced new plans to increase production efficiencies. It is also worth noting that Reynolds is the only vertically integrated aluminum foil manufacturer in the U.S., a significant competitive advantage providing us with a high level of control over quality, continuity of supply, and cost. Our Hefty and Presto Waste & Storage bag businesses continue to perform well in the second quarter, and the outlook for these businesses is strong. We delivered sequential improvements in our Waste and Food bag sales volumes. Product innovation remained a major driver of growth, reflecting several new products including the successful expansion of Hefty Ultra Strong with Coastal Plastic, additional Hefty Fabuloso scents, and the launch of Hefty Compostable Press-To-Close Food Bags. For our store brand food bags, bio-based sandwich bags made with 20% plant and ocean materials and half-gallon storage and freezer bags continue the sequential improvement in Presto's volume. Presto is on track to launch a record number of new products this year. Turning now to our disposable tableware segment. The initiatives we put into place earlier this year are proving effective. Volume trends continue to improve with a decrease of 1% in the second quarter, compared to declines of 6% in the first quarter and 8% in the second half of last year. The improvement was broad-based, reflecting improvements in plates and party cups and was driven by factors including targeted trade promotions, lower pack counts at competitive price points, and increases in cross-portfolio promotion. While the disposable tableware category continues to be under pressure, trends are sequentially improving, and we have a high degree of confidence in the initiatives we're implementing to drive sales across our portfolio. Before turning the call over to Scott, I'd like to reiterate that our business operates with a competitive advantage by providing both brands and store brands. We have a high level of confidence in the plans and actions we're taking to continue driving our categories, increasing earnings, and investing in long-term growth. Scott, over to you.

Thank you, Lance. Good morning, everyone. As you saw in our press release, we delivered a strong first half of 2024, with our second quarter above expectations and very consistent with the priorities that we outlined at the beginning of the year. Second quarter retail revenues increased by 1% to $892 million, exceeding our expectations. As Lance noted, we outperformed our categories and the categories moderately outperformed our expectations. Consolidated revenues declined by 1%, reflecting the retail revenue increase and a 2-point decrease in our low-margin non-retail revenues. Our Q2 adjusted EBITDA increased by $22 million to $172 million, driven by manufacturing volume output and lower operational costs, partially offset by higher incentive compensation costs and a modest increase in advertising. Our earnings per share was $0.46, up $0.14 from the second quarter of 2023, reflecting EBITDA growth, lower interest expense from paying down debt, and lower income tax expense as we discussed on last quarter's call. On a year-to-date basis, retail revenues were $1.687 billion, while low-margin non-retail revenues declined to $77 million. Adjusted EBITDA of $294 million increased by $62 million, driven by volume output and lower operational costs. Earnings per share was $0.69, significantly up from $0.40 last year. We generated $183 million of operating cash flow, contributing to a reduction of net debt to 2.4x trailing 12 months adjusted EBITDA in Q2 and an additional $50 million voluntary principal payment made subsequent to the quarter-end. Now, turning to our guide. To reflect our strong second quarter performance, we are raising our full-year 2024 revenue outlook, to a range of $3.590 billion to $3.670 billion compared to revenues of $3.756 billion in 2023. We continue to expect pricing to reduce revenue by approximately 1%. We expect retail volume to perform at or better than our categories at a rate of minus one point to plus one point and we expect a 2.5 point headwind from our low-margin non-retail business and optimization of our retail product portfolio. We are raising our full-year adjusted EBITDA forecast to a range of $670 million to $685 million, compared to $636 million in 2023. The new outlook for the full year reflects the flow-through of our second quarter performance, while maintaining our outlook for the second half, which as Lance said includes modest sequential improvement in our retail volume after adjusting for shipment timing in the second and third quarters. We are also increasing our full-year 2024 earnings per share forecast to a range of $1.65 to $1.71 per share. Other key assumptions incorporated into our full-year 2024 forecast are as follows. We expect continued stability in commodity markets and our costs to modestly increase through the balance of the year. SG&A remains materially unchanged compared to SG&A in 2023. Depreciation and amortization of approximately $125 million, increase in expense of approximately $100 million. The effective tax rate in the third and fourth quarters is expected to be approximately 24%, resulting in a tax rate of just over 22% for the year. Turning to the third quarter, we are introducing our Q3 revenue guide in the range of $885 million to $915 million versus $935 million in the third quarter of 2023. The building blocks include: a 1-point reduction due to pricing; a 2.5 point reduction to a 1.5 point increase from retail volume, including the reversal of approximately $15 million benefit from retailer orders shifting from the third quarter into the second quarter; and a 2-point reduction from lower-margin non-retail volume and further optimization of the retail product portfolio. We forecast third quarter adjusted EBITDA in a range of $165 million to $175 million, representing a modest increase over third quarter 2023 adjusted EBITDA, net income to be in the range of $82 million to $90 million and earnings per share in a range of $0.39 to $0.43 versus $0.37 in the year-ago period. Of course, this guide implies what our expectations are for the fourth quarter. It is worth reminding that we expect to return to historical phasing of quarterly earnings in 2024 in contrast to last year when Reynolds Cooking & Baking's fourth quarter benefited from particularly strong and expected levels of production resulting from recovery initiatives. In the fourth quarter, we also anticipate an approximately $10 million increase in combined costs from the flow-through of aluminum purchased during the second quarter when spot market prices were higher than they are today, and premiums paid for cooking bags as we transition to the in-sourcing of this product offering. In terms of capital allocation, our priorities are unchanged. We continue to estimate free cash flow of over $300 million for the full year and expect net debt leverage to remain within our target of 2 to 2.5 times adjusted EBITDA. Before wrapping up and speaking to long-term earnings drivers, I want to briefly discuss scanner data. As you know, we have recently expanded our database to capture more of the total retail market for consumer goods. Our second quarter categories were approximately 130 basis points stronger than in other tracking channels and as much as 3 points higher in certain categories. It is important to remember that a large portion of our business is store brands, so that remains a limitation to visibility in syndicated scanner data. In closing, our second quarter results were above expectations and contributed to our strong first half of 2024 and increased guidance for full year 2024. Stability and strong execution remain major drivers of our performance and I am very pleased with our operational performance and disciplined cost management. In the long term, we plan to continue leading our categories by leveraging our business model and investing in our product portfolio. We are accelerating product innovation across our company, representing significant added share and growth potential beyond 2024. We are leaning into Reyvolution cost savings and expect them to remain a major driver of margin and approximately one-third of our profit growth over the long-term, and we are driving cash flow and plan to continue increasing financial flexibility to invest in strategic opportunities. With that, let's turn to your questions.

Thank you. We will begin the question-and-answer session. Our first question comes from Robert Ottenstein with Evercore. Please proceed with your question.

Great. Thank you very much and nice quarter, guys. So, Scott, you mentioned that you're looking for a moderate improvement in retail volume in the second half on a like-for-like basis. Can you just kind of take us through the various building blocks behind that? Thank you.

Hey good morning Robert, thanks for the question. So, the way we look at it is we start with the as-reported retail volumes and we make two adjustments. First, we removed the effect of any product portfolio optimization, and second particularly for Q2 and Q3, the effect of the retail order timing differences. That remainder if you like call it kind of core or base retail volume, we improve sequentially from Q1 to Q2 call it 150 basis points. The guide contemplates a sequential improvement year-over-year from Q2 to Q3, up 50 basis points, and in turn, another sequential improvement Q3 to Q4, again roughly 50 basis points. The intent of that original comment in the prepared remarks was to clarify that point. It's important to look at that bottom-line core retail volume.

And then you mentioned that the categories moderately outperformed your expectations. Do you think that's a direct result of a somewhat weaker consumer who's just not going out as much and is therefore likely to continue going forward through this difficult period?

Robert, I'll take that one. This is Lance. That is part of the equation, yes. We have seen, with the pressure on out-of-home dining and the costs, people are going back and eating more at home. But also recall that these categories are household essentials and they're convenient low-cost items that people need every day.

Great. Thank you.

Our next question comes from Mark Astrachan with Stifel. Please proceed with your question.

Yes, thanks and good morning everybody. I guess firstly just given what's going on in the broader economy and a lot of commentary that's not necessarily positive out of a lot of consumer-facing companies, could you just give an update on how things are going in 3Q or July so far?

Thanks, Mark. This is Lance. We've previously not commented on intra-quarter performance. But as you said, given the concerns about the broader economy and the impact on companies' performance, I think it's important we make that exception for this quarter. Our July performance was right in line with our expectations and consumer takeaway in our categories was also in line with our expectations throughout July. Recall we talked about sequential modest improvement in the core retail sales volume that was factored into our guide.

Got it. That's helpful. And then the comments Scott that you made about the new scanner data channels, I think we've seen similar things for your business and for others as well in terms of the outperformance for some of those new tracked channels like club online, etc. I guess, I'm curious for your business, what do you think is driving it? How sustainable is it? Just remind us if there's any margin differential on those channels versus legacy? Also, is there any differential in your exposure from brands versus private label for those customers?

I'll start, Lance may add on. I think the structural observation is that our new database is obviously picking up more of the actual shopping behavior in the marketplace. As I think I shared in the prepared remarks, we saw outperformance of about 130 basis points versus other track channels. An example would be in our foil business; it was about three points better. It's hard to explain why those indexes are different other than to point out the obvious that it's a broader cross-section of consumer behavior. Regarding your second question about margins, we wouldn't call out any significant or material difference in margin profile between those tracked channel observations. So hopefully, that's responsive.

Got it. Okay. Thank you.

Our next question comes from Nik Modi with RBC Capital Markets. Please proceed with your question.

Thank you. Good morning, everyone. Lance, I think you guys have been a lot more realistic about the economic situation compared to most companies across the consumer goods landscape. I'm just curious about your perspective on whether you think we've hit the bottom? Depending on where we are in the ecosystem, it seems like things are just getting worse. I think echoing some of the comments made prior and some of the questions. I would love to get your perspective on that. And dovetailing with that, promotions have been ramping pretty broadly but you guys were able to still put up flat pricing overall and in some cases even up. I wanted your perspective around what you're seeing in the pricing promotion environment.

Hi, Nik. We believe, and we said this at the beginning of the year, that consumers are under pressure. I noted declines in personal savings, record levels of household debt, and significant decreases in SNAP funding. But our category consists of household essentials that are affordable and convenient, and we are benefiting from people dining away from home less frequently. We expect to continue outperforming our categories and maintain our category expectations in the second half. We believe it is going to improve modestly but there will be no significant change. Regarding promotional levels given the retail environment, they have returned to pre-pandemic levels, and we've invested accordingly. About 20% of our product sales are on promotion, consistent with what we had in our plan and our guide. I will add that in Q3 and Q4, over 90% of the promotion is already locked, allowing us to forecast accurately.

Great. If I could just ask one more follow-up on waste bags in terms of what the shelf space dynamic is. Clorox has been coming out of the cyber attack trying to get back into space. Just curious if you are holding onto more space than you had anticipated? Any perspective around that would be helpful.

Let me start by saying that both Hefty and private label gained share in the second quarter and year-to-date. We are also a significant player in private label waste bags. Specifically answering your point, our total points of distribution are up year-to-date double digits. Looking forward, our price points are well positioned, and we’re satisfied with the price gaps. Our promotional calendar, as I mentioned earlier, is strong and locked in. We're very excited about a new advertising campaign we have with John Cena. We've successfully grown our brand and store brands in this category for the last eight years and we expect that to continue going forward.

Excellent. Thank you. I’ll pass it on.

Our next question comes from Peter Grom with UBS. Please proceed with your question.

Thanks, operator. Good morning, everyone. I hope you're doing well. Scott, I was hoping to get some perspective on gross margin progression from here. I know the full-year outlook still calls for commodity costs that are stable, but you mentioned in your prepared remarks that you expect costs to modestly increase through the balance of the year. Additionally, you called out this $10 million headwind in Q4. I would be curious how we should be thinking about gross margin progression in the balance of the year given the strong first half? And bigger picture, can you unpack what you're seeing across your key inputs and how we should be thinking about inflation at this stage looking out to 2025?

You bet. Thanks for the question. So the most important part of the gross margin story is when we introduced the full-year guide, we indicated around a 200 basis point improvement in gross margin, which is what we continue to see and has been factored into the guide for our full year. As we break down margin performance between Q3 and Q4, we anticipate a little bit of expansion in Q3 and a little bit of contraction in Q4, as noted in my prepared remarks referring to the $10 million of costs absorbed in Q4. In terms of the underlying commodities, the core two would be resin and aluminum, which have distinct characteristics. Aluminum has been extremely volatile, starting the year at $1, spiking to about $1.20 in Q2, and as of yesterday it was back under $1. Resin has drifted up consistently throughout the year. We are mindful of those changes in each of those underlying commodities, which are explicitly factored into our guidance.

Great. Super helpful. I'll pass it on.

Our next question comes from Lauren Lieberman with Barclays. Please proceed with your question.

Great. Thanks. Good morning, guys. I just wanted to catch up a bit on Hefty Tableware. I want to get a status report on some of the turnaround efforts there. In particular, margins took a step down this quarter. Is it just comparisons or is it reflective of increased investment in that segment to get the business going again?

Thanks, Lauren. Yes, we are very pleased with the performance from a sales recovery standpoint in our tableware segment. Our tableware promotions were even more effective than we had anticipated in driving volume, but it also affected our margins to a limited extent, as expected. The Tableware and Reynolds Cooking & Baking are two seasonal businesses with significant holiday product promotions. Different promotional programs and timing by comparison in the prior year also contributed to timing benefits in the quarter. As a reminder, we have a strong private label business in the tableware category, and private label took share in these categories in Q2.

Our next question comes from Andrea Teixeira with JPMorgan. Please proceed with your question.

Thanks, and good morning everyone. I was hoping if you could comment a bit on pricing from a category perspective. Since you have a balanced portfolio with both branded and non-branded products, could you comment on how you're seeing consumer downtrading and how you're employing revenue growth management? You mentioned that some promotions yielded better than anticipated results in Hefty Tableware. I was wondering if you're seeing a stabilization of that potential down trade and how you're seeing the dynamics between brands and non-brands within your portfolio?

Thank you, Andrea. Private label sales volume is back to 2019 levels. We saw an increase in brands through the pandemic, and now that we have seen that reversed, there has been a modest increase in private label in some of our categories. We're benefiting from those increases as well as driving some brand share at the same time. The gaps between brands and private labels depend on the category, and it provides a strong foundation for how we're implementing our promotional programs and driving our volumes above category forecast. We've managed that margin very effectively, as demonstrated by stronger-than-expected profitability in Q1 and Q2. I encourage you to look at Presto's margins year-to-date as well, which reflect our success in providing retail partners with category insights and products they need along with consumers' need for the right combination of performance, reliability, and value. As I mentioned in my prepared remarks, Presto is on track to launch a record number of new products, contributing to margin performance in the store brand categories.

That's helpful, Lance. But regarding the pricing, especially for aluminum, which you don't have private label for, I was hoping to see how you are maintaining stable price points. Are you seeing the business stabilize in terms of pricing as you look into the balance of the year?

In Cooking & Baking, the Reynolds Wrap brand specifically has gained share points throughout this year. We're confident that we've established the right price gaps and have solid promotional programs and advertising in place. We’re focusing on Millennials and Gen Z in our advertising for usage occasions. We're pleased to be gaining share, and having the right price gaps puts us in a good position as we enter the holiday season for Cooking & Baking. Parchment paper is growing at double digits. We maintain a strong brand share in that category and are satisfied with our performance there. It's critical to concentrate on continued usage occasions to grow the entire category.

There are no further questions at this time. I would now like to turn the floor back over to Lance Mitchell for closing comments.

Well thank you, operator, and thank you everyone for your time today. I want to take a moment to thank and congratulate the 6,000 Reynolds Consumer Products team members who contribute to our business every day. They are the ones making our successful quarter and continued growth possible. My sincere gratitude to all of my teammates. Please continue to stay safe. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.