Greetings. Welcome to the Reynolds Consumer Products, Inc. Second Quarter 2025 Earnings Call. 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 for Reynolds Consumer Products' Second Quarter Earnings Conference Call. Please note that this call is being webcast on the Investor Relations section of our corporate site at reynoldsconsumerproducts.com. Our earnings press release and investor deck are also available. With me on the call today are Scott Huckins, our President and Chief Executive Officer; and Nathan Lowe, our Chief Financial Officer. Following prepared remarks, we will open the call for a brief 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 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 Scott.

Thank you, Mark, and good morning, everyone. I will review performance and how we were driving our business before passing the call to Nathan to review the financials, our guidance, and our plans for capital allocation. We delivered another solid quarter in line with our expectations in a challenging consumer and operating environment. Commercially, we delivered volume growth across the overwhelming majority of our categories, while categories like foam performed as expected. We gained share in multiple areas, including Hefty Waste Bags, private label food bags and Hefty Party Cups. Product innovation remained a major contributor to volume and share gains as we scaled recent innovations and launched new products. We continue to prioritize investment in products such as Hefty Fabuloso scented waste bags, Hefty ECOSAVE compostable cutlery, Reynolds Kitchens air fryer cups, and many other new products. Financially, we delivered results consistent with our expectations while starting to implement pricing to offset higher input costs. Nathan will speak more to our results and cost efforts where we are making progress in building a more nimble and responsive business. And strategically, we remained on task advancing multiple work streams to drive long-term growth and structural margin expansion, building on our competitive advantages as a U.S.-centric business. A part of this work is adding some key new members to the team, which I will speak to in a few minutes. In terms of the operating environment, two data points offer perspective on the consumer climate that RCP and others are operating in. First, U.S. consumer confidence is down 15 points in the first half of 2025 and even more so on the expectations index. Second, SNAP benefits are used by approximately 15% of U.S. households, which is similar in any given RCP category. As you know, those benefits are being reduced. In this context, we continue to lead our categories by meeting the consumers' need for affordability, value, and convenience. Our response is wide ranging, including new opening price points, varied pack sizes in both premium and non-premium offerings. Examples include parchment in 25 square foot packages and revised counts of Hefty Waste Bags and Hefty Party Cups. We have also expanded distribution of Hefty Press to Close food bags, advancing the Hefty brand at a competitive price point in a large and important consumer segment. Much of this demonstrates that our emphasis on Hefty as the brand providing strong consumer value is working, evidenced by our share gains across many segments of our business. The need for convenient ways to cook and enjoy food at home is also growing, driven by demographic changes and food away-from-home's continued outpacing of food-at-home costs. In response, RCP is gaining and expanding distribution on items prioritizing cooking and convenience while also infusing a little fun. Reynolds Kitchen Parchment is demonstrating strong growth and gaining momentum, driven by increased demand for unbleached parchment and air fryer liners. Reynolds Kitchen parchment cooking bags are showing strong early adoption and sell-through at major retailers. Reynolds Wrap Limited Edition Fun Foil performed well during the 4th of July and will be part of a broader ongoing seasonal offering. Hefty extra deep paper dishes are off to a solid start. We are also spending even more time in the field with our retail partners to align more closely on consumer trends and shared objectives. This means price pack shifts and product innovations such as those I mentioned, as well as more forward-looking conversations about our categories and shelf sets. These conversations are also contributing to our success adapting to broader shifts in shopping behavior, including strong outperformance online, as an example. Turning to the long term. In February, I outlined the work we are doing to drive incremental growth and margin beyond 2025. Those programs are proceeding well and are on track to begin delivering benefits late this year. Two growth-related initiatives and one of our supply chain projects are worth highlighting. In the area of revenue growth management, we have a big opportunity to implement trade programs generating higher returns for our retail partners and RCP alike. We have begun using new tools and processes to unlock this potential and are encouraged by early wins trialing replanned promotions. We see a lot of opportunity in this area to migrate trade dollars from lower returning programs to higher returning programs for the mutual benefit of RCP and our retail partners. Stronger product innovation across our portfolio is a priority and includes upping our game in sustainable product offerings. The Atacama acquisition gives us proprietary technology that we are now commercializing. Hefty ECOSAVE cutlery is entirely compostable and was recently introduced at two of the U.S.'s largest retailers. Early results are very encouraging and the potential could be significant. Hefty ECOSAVE cutlery is as durable as traditional disposable tableware, competitively priced and has the potential to transform the approximately $1 billion retail cutlery segment by offering consumers biodegradability without sacrificing the functionality that they expect. In the area of supply chain, we are doing many things, including responding to the changes coming out of Washington. One noteworthy highlight is the onshoring of production of smaller product offerings that are winning with consumers and benefit from a shift to U.S. manufacturing by RCP. Our team is doing an excellent job executing against our strategic initiatives, and I am confident that our newest members will help us drive even better commercial, operational, and financial performance. Our new Chief Commercial Officer, Carlen Hooker, joins us from Church & Dwight and is leading us in unlocking more of the distribution, growth, and revenue growth management opportunities available to our strong brands and product portfolio. Our new head of Hefty Tableware, Ryan Clark, comes to us from Post Holdings and is leveraging his experience implementing plans to improve revenue and profit trends for this important business. In closing, we are executing well in a challenging operating environment. We are meeting consumers and retailers' needs with Reynolds Hefty and store brand products in packages that are affordable, functional and provide a little fun too. We are offsetting near-term cost pressures through pricing and productivity. And we are making our U.S.-centric business even stronger, invested in clearly defined programs to drive incremental growth and margin beyond 2025. Nathan, over to you.

Thank you, Scott, and good morning, everyone. I am pleased to report our second quarter financial results, which were in line with the expectations we provided in April and delivered in a challenging operating environment. In the second quarter, net revenues were $938 million, an increase from $930 million in the year-ago period. Retail revenue of $887 million was flat with retail revenue in the second quarter of 2024 and better than our initial projections as retail volume grew modestly, excluding a more than one point headwind from foam products. As Scott mentioned, we grew share in multiple categories. Our non-retail revenues increased to $51 million. Second quarter adjusted EBITDA of $163 million was at the high end of our range and compares to $172 million of adjusted EBITDA in the year-ago period. Lower retail volume and the timing of pricing actions relative to input cost increases were partially offset by reductions in SG&A. Adjusted earnings per share was $0.39 versus $0.41 in the year-ago period when excluding a discrete tax benefit of $0.05 per share. It is also worth noting that second quarter '25 adjusted EPS excludes $0.05 of strategic investments in revenue growth and operational cost savings initiatives as well as CEO transition costs. Before turning to the guidance, it's important to elaborate on our gross profit and SG&A performance. The gross profit decline is not representative of ongoing profitability given our implemented and in-flight pricing, which is designed to fully recover commodity and tariff impacts. In terms of SG&A, a high year-ago comparison contributed to the reduction this quarter. That said, we have also adjusted SG&A to current operating conditions with the intent of lowering our cost base and creating a more agile structure. Looking ahead, we continue to execute in a challenging operating environment, and yet we remain confident in the 2025 earnings expectations that we provided when reporting the first quarter results. We are reiterating our outlook for net revenues to be down low single digits by comparison to '24 net revenues, adjusted EBITDA in a range of $650 million to $670 million and adjusted EPS of $1.54 to $1.61 for the year. As a reminder, our full-year expectations for adjusted EBITDA and adjusted EPS continue to exclude debt refinancing costs recognized in the first quarter and approximately $25 million to $35 million of pretax costs to execute strategic initiatives and CEO transition costs. Key features of our expectations include the following: pricing representing full recovery of increased commodity and tariff costs, continued retail volume performance in line with or better than our categories. Non-retail revenues are expected to be flat for the year and the third quarter, implying a low single-digit decrease in the fourth quarter and continued discipline in all areas of controllable costs, including SG&A. In the third quarter, we expect net revenues to be down low single digits by comparison to third quarter '24 net revenues of $910 million, including sequentially accelerating price growth to offset higher input costs. We expect adjusted EBITDA in a range between $160 million and $170 million by comparison to third quarter '24 adjusted EBITDA of $171 million. We expect adjusted EPS in a range of $0.37 to $0.41 versus $0.41 in the year-ago period. Now turning to cash flow and capital allocation. Net leverage was 2.4x EBITDA at the end of Q2 and inside our target range of 2 to 2.5x, positioning us well to continue investing against our pipeline of attractive investment opportunities. We are pleased to report a $30 million increase in capital spending by comparison to the first half of 2024 and now expect a $30 million to $40 million increase for the year. This increase in capital reflects investment in high-return projects to support growth, drive margin expansion, and deliver a more robust earnings model beyond 2025. A key focus of these investments is automation and other high-return initiatives. I am also pleased with the progress we are making in operational productivity without capital, driven by a range of continuous improvement initiatives and advancements in predictive maintenance. In closing, we remain confident in our earnings expectations for 2025, and we are executing programs to increase RCP's long-term growth, earnings and cash flow potential. We see significant opportunities to create value in our business and are focused on unlocking more of that value. With that, let's open the floor for your questions.

And our first question today comes from the line of Kaumil Gajrawala with Jefferies.

A couple of questions. I guess the first one on investment areas, Nathan, as you had mentioned, if you can maybe just prioritize a bit more specificity and obviously, your leverage is where you like it to be, you're looking to deploy capital. What are some of the areas that you see as new and incremental opportunities that you can pursue that maybe you weren't able to a couple of years ago?

Yes. Thanks for the question, Kaumil. It's similar to what we've been talking about really since the start of the year is we've spent a lot of time building out an automation capital pipeline, in particular, for multiple years of high-return investments there. So that's a major priority, I would say, within deployment of capital. The other, which is more recent, is just looking at opportunities to reshore any manufacturing that may be overseas on some of the smaller product categories that we previously were importing. So that's a new source of return, but another good spot to deploy capital.

Got it. How about from the innovation or branding perspective? Are there new categories or perhaps more innovative ideas that are further from your core focus that you are considering or already pursuing?

Kaumil, it's Scott. I'd say two thoughts. I mean, one, we continue to invest behind Hefty scented waste bags and the Fabuloso innovation, I think that continues to deliver really solid performance. Investing behind that, we think, is wise. We're talking about a quarter where retail takeaways were on the order of plus 10. So we feel like continuing to feed that is smart. I'd also go back to one of the comments I made in terms of more recent innovation, which would be Hefty ECOSAVE cutlery. We're focused on those sorts of items in the sustainability part of the business because generally, we see some deficiencies either in the value proposition, meaning those items are super premium priced or the quality, frankly, is inferior. So we think this concept of affordable sustainability is also appropriate to invest behind, but that would be a larger one and a smaller one as examples.

The next question is from the line of Andrea Teixeira with JPMorgan.

I was hoping if you can explain a little bit more, Scott, and Nathan, on the gross margin. And of course, we understand the pressures and the issues with aluminum and the tariffs. Of course, everything has been moving around. But embedded in your guide, what are you looking ahead and how to think about the pricing and the cadence of pricing to offset that? And what are you embedding in terms of elasticity for the price increases?

Yes. Maybe I'll cover sort of the cost headwinds, the pricing and the development of that through the year. And I'd imagine Scott would want to talk a little bit about elasticities. So as we said on the April call, we're expecting roughly 2 to 4 points of cost headwinds from commodities and tariffs through the year. That remains true. Similarly, as the guide contemplates full recovery of that, we're anticipating 2 to 4 points of pricing. The guide also maintains our revenue forecast, but would expect an interplay between volume and price. So there is some quantity of elasticity baked into the guide. Scott, if you want to elaborate on that?

Yes. Thank you. All I'd add to, I think Nathan's comments are correct. All I'd add is just maybe a couple of comments around aluminum. Obviously, we've watched it. Those who track the business and the category see aluminum costs up quite a bit from April. What may or may not be obvious, though, is as we've been watching the category, we've started to see fairly sharp price increases in store brand aluminum foil. And that's important because not only are the absolute price points relevant, so are the gaps. We're looking at price gaps that are well inside $1, meaning that's constructive. Some are even approaching parity to flagship brands. The point would be that we consider that in the guide, as Nathan shared, but it's important to understand that the relationship of price and cost at the consumer level between our branded offerings and store brands. So I'd want to add that to just the narrative around elasticities.

Yes. And I should circle back to the specific question you started with around Q2 as well. That was the timing of recovery of those increases in costs versus when the pricing is coming through is the majority of the year-over-year decline in gross profit.

To clarify, we should be seeing an improvement in the balance between pricing and gross margin in the third quarter, with a full recovery likely occurring in the fourth quarter. Regarding the top line, I'm interested in your comments about trash bags suggesting that you may have gained market share in the brand. I just want to confirm that everyone on this call understands that correctly. Additionally, in terms of food bags, you have gained share in the private label store brand you produce. Is that an accurate interpretation?

Yes. On the share questions, Andrea, we picked up roughly one point of share in Hefty branded waste in the quarter. We also picked up share in store brand food bags in the quarter, so that would be accurate.

Yes. And back to the additional questions on gross profit, I'd point back to the 2 to 4 points, right? So we're talking about 2 to 4 points of headwinds and 2 to 4 points of pricing recovery for the year guide. So I'd say that would contemplate a recovery throughout the year, all else being equal. As for Q3, important to look at the timing of SG&A last year as well as you're thinking about what is underlying the EBITDA guidance for Q3. So a Q3 guided EBITDA this year that looks a lot like our Q2 performance would imply a better gross profit outcome in the third quarter.

Our next question comes from the line of Rob Ottenstein with Evercore ISI.

You guys started the call off talking about weak consumer confidence citing third-party sources. I'd love you to talk a little bit more about what you're actually seeing in terms of consumer purchase patterns, value-seeking behavior. And then in that context, what gives you the confidence that you will actually be able to successfully execute on your price increases, perhaps touching on the competitive behavior that you're seeing? We heard yesterday from Proctor that they're seeing increased promotions in a number of their categories. We've heard from others about stepped-up couponing. So love to get a sense of what gives you the confidence that you'll be able to execute effectively your price increases?

Robert, I'll begin and Nathan may add. I'll try to follow the order. Regarding price increases, we have generally implemented those announced in the marketplace as expected. There will be additional pricing in the third quarter, and I remain confident about that. The strength of our brands, particularly, gives us that confidence. To answer your question directly, when it comes to promotional depth or levels of promotion, our business is similar to last year’s quarter. Overall, we do not observe any significant changes in promotions across the business. For completeness, we also see stable brand and store brand mix. Many have inquired if there are signs of trade down, and I would say that the categories remain quite stable in this regard. As for consumers, it's fair to say they are still under pressure. This has been our perspective since the beginning of the year, as we've noted statistics to illustrate the decline in consumer confidence, which has been understood. Consequently, consumers are definitely seeking value. Two noteworthy trends are the continued gains of clubs in the retail space, particularly among lower-income demographics, which is interesting and highlights the focus on value. Additionally, online activities are increasing across all demographics, and we are pleased with our progress there, particularly among lower-income groups. I hope this addresses the questions raised, and we feel positive about our original outlook. Ultimately, the state of the consumer seems largely unchanged.

Our next question comes from the line of Peter Grom with UBS.

I just had a question on category growth. Last quarter, you kind of cited that you were anticipating a more challenging year ahead. Given what we're kind of seeing from a category perspective, your performance, has that thinking evolved at all as you look out to the balance of the year?

I'll start and Nathan may add. But I'd say our view remains intact. Any given quarter, you may see slight differences versus a full-year expectation. But I think that full-year expectation remains kind of following the discussion to the previous question. Our view of the consumer has held up quite well. Performance of the categories taken as a whole is about what we thought. Therefore, we stuck to our overall outlook in terms of the top line and category performance.

Yes. I think just to add to that, I think that was a revenue comment. As we've talked about, as more pricing comes into the categories, we could see a trade-off between price and volume, but our outlook for retail revenues remain intact to Scott's point.

Okay. That's really helpful. And then I just had a question on retail inventory destocking. You're hearing it from a wide range of consumer goods companies across a number of different categories. So was there any impact as it relates to retail inventory destocking in the quarter? And Scott, you kind of touched on some of the faster-growing channels being club, which tend to be more efficient from an inventory perspective. So I wasn't sure if you're starting to see kind of a more natural headwind that's occurring as that channel shift plays out?

Good question. I would say, in the quarter, taken as a whole, destocking was a neutral impact on the company. Certainly, that doesn't mean that literally every single item or category is unaffected. But materially, it was not a large event in the quarter or any material event in the quarter. My observation of how to think about it is when we think about what happened in Q1, in rough math, it sort of feels like retailers took about a week's worth of supply out of the channel, and that has just persisted. So perhaps that speaks to foot traffic or variables like that. But we did not see anything substantive in terms of destocking in Q2.

Our next question comes from the line of Brian McNamara with Canaccord Genuity.

So in Q1, you mentioned retailer destocking as a headwind. I was hoping you could give us an update on destocking overall, whether it's at the retailer level or consumer's kind of pantry deloading and how that's impacting your view on volumes for the back half?

Sure. As I mentioned to the last question, I'd say Q2, we just did not see, taken as a whole, any material impact from destocking. So our kind of working assumption is that the destocking that we did see in Q1 flows through the balance of the year. It didn't get better, it didn't get worse. What I was trying to explain to the previous caller was that the math looks to me like retailers took about a week's worth of stock out of the chain, and so our operating assumption is that, that sticks and flows through the year. We don't see anything in the business, again, materially that tells us that the destocking is getting better or worse. In Q2, taken as a whole, it was completely neutral.

Our next question comes from the line of Jim Abbott with Barclays.

So I just wanted to get some color on the promotional environment in trash. We see solid volume performance there, solid share gain that you were speaking about. But we do see, at least in Nielsen, an uptick in promotions, and we also see pricing down in the price/volume mix table in your release. I know you spoke that overall promotional environment has kind of held steady. But I guess, how do you disaggregate what's driving those share gains in trash between higher promotions or the innovation that you've spoken to?

I think you're getting at the promotional environment and trash. When we look at our level of promotion in this second quarter versus the prior year second quarter that was at one point. So when I referred to, we don't see a step change in that. That was the basis. You correctly called out in the price/volume mix table in Hefty waste and storage, we had a net effect of one point of price. But to be fair, in part, that's informed by some distribution gains, investing behind both waste and frankly, storage. I just go back to the macro point, which is nothing significant certainly year-over-year in our business in that category.

Got it. And then just on the tariff headwind that you were speaking to last quarter, I think it was $100 million to $200 million. Obviously, that changes by the day, I would think. But how are you thinking about that headwind now versus back a few months ago when the tariff rate on at least China was a lot higher?

Yes. No, good question. It's back to the 2 to 4 points really, as we said in April, roughly a 2- to 4-point headwind. If you said what made that up back when we spoke in April versus what it is now, it would have changed a little bit. I'd say that aluminum makes up a bigger part of the headwind. As the tariff rates have settled out in many cases to a lower absolute rate more recently, they've probably come down a little bit. But net-net, it's about the same headwind as we thought it would have been when we spoke in April.

Our next question is a follow-up from Brian McNamara with Canaccord Genuity.

Gross margin is quite challenging to predict for your company due to various factors. I understand gross margin was mentioned earlier in the call, and I’m curious about the perspective of a skeptic who might argue that you fell short on gross margin or gross profit by $10 million and compensated for it through cost reductions in the SG&A line. How should we approach this in the second half of the year?

Yes. I mean the guidance contemplates a similar amount of pricing recovery in the year as we have cost increases. So, I mean, 2 to 4 points of cost headwinds and 2 to 4 points of pricing recovery. Of course, that's not how it wasn't a one-to-one relationship in Q2, just really the phasing of the development of pricing coming into the market versus the timing of when those higher costs started flowing through to the P&L. Of course, with the higher revenue performance in Q2 as well, we were pulling through some of that higher cost inventory before we had the pricing in market. Hopefully, that explains it.

Great. Finally, on the innovation front, I think you mentioned that the parchment cooking bags are off to a good start. I'm curious about how the air fryer cups are performing. Both of those innovations made a lot of sense to us, and I believe you launched them about a month ago.

Thank you. Our cooking and baking colleagues will be pleased with that question. We're happy not across that portfolio. A lot of folks are well aware of the prominence of the Reynolds Wrap brand and probably less so across some of those other offerings, but we're very pleased with how that innovation has taken off. As I think I mentioned a bit in prepared remarks, we're specifically investing behind that. Because, again, we certainly, as all of you know, see a greater degree of inflationary costs in eating away from home than in-home. We think that being nimble and innovative in cooking at home is value created. Therefore, we continue to be pleased with that.

At this time, this concludes our question-and-answer session. I'd now like to turn the floor back over to management for closing comments.

Yes. Thank you, operator, and thank you to our analysts and investors for your time and your interest in our business. We'd also like to thank our 6,400 colleagues at Reynolds Consumer Products for executing well in this environment and doing the work to unlock even more of our potential. So with that, we wish everybody a great day.

This will conclude today's conference. Thank you for your participation. You may now disconnect your lines, and have a wonderful day.