Reynolds Consumer Products Inc. (REYN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Reynolds Consumer Products Second Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your speaker today, Mark Swartzberg. Thank you, and please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us on Reynolds Consumer Products Second Quarter 2023 Earnings Conference Call. Please note that this call is being recorded and webcast on the Investor Relations section of our corporate website at reynoldsconsumerproducts.com. Our earnings press release and accompanying presentation slides are also available on the site. With me on the call today are Lance Mitchell, our President and Chief Executive Officer; and Michael Graham, our Chief Financial Officer. For our call, Lance will focus his remarks on our second quarter performance, progress on the Reynolds Cooking & Baking recovery plan and what we are doing to drive results across our business. Michael will review our second quarter financials and our outlook for the third quarter and the full year. 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 in our annual report on Form 10-K and our quarterly report on Form 10-Q. Please note that 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-Q. Copies of 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. As we enter the second half of our fiscal year, I'm exceptionally pleased with our second quarter results. We are well positioned to deliver significantly improved earnings in fiscal year 2023 and continued future growth. We began 2023 with profitability restored at 3 of our 4 businesses as well as a comprehensive plan to recover the profitability in our Reynolds Cooking and Baking business by the end of the second quarter. We were very effective executing each business' plans in the first quarter and again in the second quarter, including Reynolds Cooking & Baking's ongoing operational improvement initiatives. We also gained share in household foil and other categories. As a result, we have returned earnings to historical levels in all 4 of our businesses, and expect strong earnings growth and cash flow to continue over the balance of 2023. Before turning to our plans to drive continued earnings improvement across RCP, I'd like to give you an update on the Reynolds Cooking and Baking business. As I mentioned, we executed extensive planned initiatives to stabilize manufacturing and improve operational efficiencies in the quarter. Performance against those initiatives progressed as we had planned. As a result, we continue to achieve the operational and gross margin objectives we set at the start of the fiscal year. In addition, we have done the work required to ensure operational stability and equipment reliability extends well beyond 2023. For example, we completed the largest combined scope of planned maintenance downtime and new equipment installation in the history of the Reynolds Cooking & Baking unit manufacturing operations, including replacement and rebuilds of key equipment, multiple upgrades to electronics, installation of condition-based monitoring systems and installation of new automation equipment to our spooling production. We also advanced ongoing work to standardize manufacturing and maintenance processes. In summary, we are successfully executing the Reynolds Cooking & Baking recovery plan, and I am confident in our ability to increase earnings in this business. Now let's turn to how we're performing at retail and what we're doing to drive growth with our retail partners and consumers. Our integrated brand and store brand model continues to be a competitive advantage. That was proven again in the second quarter. Reynolds Wrap gained more than 5 points of brand share in the foil category gaining even more share than in the first quarter. Reynolds Wrap is responding to an improvement in retail price points and price gaps versus store brands. A return to holiday trade promotions, which were very well received by retailers and consumers over Memorial Day and leading into the Fourth of July. Increased advertising across major media platforms resulting in strong double-digit increase in media impressions versus the second quarter of 2022 and increased reliance upon influencers and relevant media channels contributing to increases in household penetration among Gen Z and millennials. In Waste Bags, Hefty entered 2023, with Waste Bag share multiple points above 2019. The brand is holding share and the company increased its share of store brand Waste Bags. In food bags, Hefty gained share of slider bags and the company's share of store brand Presto close food bags increased. And in tableware Hefty held share of disposable tableware while also benefiting from the consumer migration to store brands. We implemented previously communicated increases in advertising and trade investment in the second quarter and the first half of 2023 and plan for continued investments over the balance of the year. I mentioned Reynolds Wrap pronounced pickup in media impressions and its penetration of young adult households. In fact, Reynolds Wrap has increased household penetration in all major demographics, and we're seeing favorable household penetration trends for Hefty as well. As planned, we have also increased trade investment by implementing proven promotional programs. Going forward, we plan to execute promotions around retailer key events and major seasonal periods, including back-to-school and the holiday season. And in terms of innovation since the launch of our Hefty Fabuloso Lavender waste bags over 2 years ago, and the more recent launch of our Fabuloso Lemon Waste Bags, the entire Fabuloso product line has grown exceptionally well, reaching $140 million in retail sales during the second quarter and attaining a 73% ACV. We expect this growth to continue as we [ earn ] more distribution of our lemon scented Fabuloso bags. Other newer products that provide differentiation for our customers and consumers include Presto's Presto's stand-and-fill store brand for us to close food bags, Reynolds Kitchen stay flat parchment with smart grid technology and Reynolds kitchen Air Fry liners, all of which are gaining increased distribution. Environmentally friendly products are becoming more and more relevant among consumers which provides us the opportunity to introduce more innovative, sustainable products. These include Hefty ultra strong waste bags made with 50% recovered materials, Hefty and store brand waste bags made with post-consumer recycled materials and store brand food bags incorporating land and ocean materials. Also in the area of sustainability, we recently announced a grant to the new norm, a start-up out of Johns Hopkins University that has developed an exciting technology transforming materials from party cups into sustainable yarns and fabrics. As the #1 party cup manufacturer, we are excited to assist the new norm with their research and development efforts. And we continue to operate in an economy with mixed growth signals, including shifting consumer confidence. To ensure success in any economic environment, we're focused on providing consumers with the right combination of value, product performance and convenience. Our first half category share gains demonstrate our effectiveness in accomplishing that goal. In closing, we are very well positioned for the second half of 2023. We have restored profitability across RCP. Our integrated brand and store brand model remains a competitive advantage and we're making the investments and innovating to drive added growth for Reynolds, Hefty and our store brands. As a result, we expect strong earnings growth and cash flows to continue over the balance of the year. With that, over to you, Michael.

Thank you, Lance, and good morning, everyone. We performed well in the second quarter, reflecting strong consumption trends at retail successful implementation of comprehensive initiatives to improve operations and return Reynolds Cooking and Baking to historical earnings levels and a continuation of restored profitability in our other 3 businesses. All of this has set us up for a strong earnings growth, cash flow and debt reduction this year. Looking at the results, Net revenues increased 3% over the year ago period due to price increases combined with strong volumes in Reynolds Cooking and Baking which were up 12% overall and 15% in our retail business. This increase reflected continued strength at retail, including consistent and significant share gains for Reynolds Wrap, which offset volume declines in our other 3 businesses. And Hefty waste and storage volume decreased 8%, driven by category declines and consumer migration to store brand waste bags and full bags where our share increased. Volume in Hefty Tableware declined 7%, consistent with category trends. And Presto Products volume declined 3%, driven by lower specialty product sales volume partially offset by continued strength in food bag products. Second quarter net income and adjusted EBITDA also increased over the prior year period, driven by margin expansion across all businesses. SG&A was also up as expected, driven by higher personnel costs, investments in advertising and professional fees in support of our Reynolds Cooking and Baking plan and higher interest costs continued to have an expected impact on net income in the quarter, reflecting higher interest rates. Our cash flow trends remained strong in the second quarter, resulting in an operating cash flow of $207 million year-to-date representing a $106 million increase over operating cash flow for the comparable period in the prior year. Looking ahead, for the third quarter, we expect net revenues to be down in the range of 3% to 5%, consisting of essentially unchanged pricing and 3% to 5% lower volume. Noting that Memorial Day and Fourth of July holiday promotions resulted in stronger second quarter shipments and higher household inventories at the start of the third quarter. Our third quarter adjusted EBITDA is expected to be in the range of $155 million to $165 million, up by comparison to adjusted EBIT of $116 million in the prior year. Driven by Reynolds Cooking and Baking's recent return to historical levels of earnings and a continuation of restore profitability in our other 3 businesses. And EPS is expected to be in the range of $0.34 to $0.38 per share. For the full year 2023, we are reconfirming our revenue guide and raising our earnings outlook to reflect our strong performance in the second quarter. We continue to expect net revenues to be in line with prior year, plus or minus 1%, consisting of 2% higher pricing and 2% lower volume at the midpoint of our guide. Consolidated retail volume is estimated to be in line with prior year consolidated retail volumes. Consolidated non-retail sales are estimated to be down $60 million by comparison to $268 million in the prior year. In our new adjusted EBITDA range is now $615 million to $635 million, up from our previous range of $605 million to $635 million, and EPS is expected to be in the range of $1.34 to $1.41 per share. Other key assumptions for the year include: further execution of the Reynolds Cooking and Baking recovery plan and earnings consistent with historical levels in all of our businesses in the second half of the fiscal year. Commodity rates, which have been consistent with our expectations since reporting first quarter 2023 results remain broadly stable over the balance of the year. Another year of approximately 200 basis points of incremental margin from Reyvolution cost savings as expected, and we will continue to use these savings as a potential source of investment in our categories and in our business. Gross profit is slightly above $920 million at the midpoint of our adjusted EBITDA guide with no significant change to annual depreciation and amortization, interest expense effective tax rates and capital spending estimates that we provided in our last earnings call. Now before I wrap up my prepared remarks, I'd like to share my perspective on what's being achieved in Reynolds Cooking and Baking as well as on our cash flow and debt reduction. As Lance said, we began 2023 with a clear and comprehensive plan for restoring Reynolds Cooking and Baking profitability. We are delivering on that plan while also driving strong retail trends for the Reynolds portfolio. In terms of cash flow, as I mentioned, first half cash flow was strong. A big driver of that is the work we've undertaken to reduce inventory and our ongoing efforts to improve payment terms. And in terms of capital allocation, our priorities are unchanged, invest in our business, maintain capital spending discipline and continue to deleverage and evaluate bolt-on M&A. Which takes me to debt reduction. I am pleased to report that we made a voluntary principal payment of $100 million subsequent to quarter end, and we continue to expect net debt in the range of $1.8 billion to $1.9 billion at year-end. With that, I'll hand the call back over to you, Lance. Thank you.

Thank you, Michael. Before we turn the call over to your questions, I know you would like an update on our CFO search following Michael's decision to retire following the release of earnings for the fiscal year. The search for Michael's replacement is going well. As I communicated in May during our first quarter earnings call, we are reviewing internal and external candidates for the CFO role. I anticipate naming his successor on or before our next earnings release. That timing will allow for a smooth transition. With that, operator, let's go to our first question.

[Operator Instructions] Our first question comes from the line of Rob Ottenstein with Evercore ISI.

Just wondering if you could maybe give us a little bit more insight into the Q3 sales guidance. Various -- I think we understand the timing issues, but that's a pretty big decline in volumes given your broad market share gains, increasing household penetration, you're stepping up advertising, you're stepping up promos a little bit, tremendous commercial momentum. It's surprising to us to see the down volume guidance to that extent?

Our Q3 guide is based on 2 factors. First of all, we are estimating non-retail sales to be down 2% in the quarter. And then the remainder is retail sales 1% to 3%, 2% of that 1% to 3% is based on household inventories that were built on foil primarily as a result of the promotions in Memorial Day and Fourth of July so that was really Q2 sales where Q3 sales are pulled forward into Q2. Now non-retail sales are metal from excess capacity to industrial customers from our Hot Springs melting and casting facility as well as food service revenues, which are classified as related party revenues. These sales have been a source of distraction in explaining our underlying top line performance but have no meaningful impact to earnings because the products are very low margin. As you saw in our release, the reduction in non-retail sales is approximately $60 million in net revenue as a headwind and approximately 2-point headwind to consolidated volume growth in 2023. So we increased our earnings guide despite that revenue non-retail impact.

Great. That's helpful. And in terms of the household inventories, can you maybe just give us some insight into your methodology in terms of understanding what that is and where that looks both for foil and your other categories?

Yes. It's done on survey basis on a proprietary survey that we do with consumers on a quarterly basis. I will tell you, it's not always completely accurate, but it's trending accurate as we've done this over the last 4 years during -- we started this COVID and it provides us an understanding of what's in the pantry and what customers' intentions are from a restocking standpoint in the following quarter.

The next question comes from the line of Lauren Lieberman with Barclays.

I have a question was just [Technical Difficulty] .

Lauren, this is Mark. I think your line is -- well, we're hearing your line very wildly, I'd suggest you come back into the queue on a different line.

No problem.

I think it's your line. I don't think it's ours judging by the prior conversation of the caller's.

Our next question is from the line of Mark Astrachan with Stifel.

A couple of questions on sort of, I don't know, I guess, call it, a bigger picture, sort of how the consumer is responding to pricing into volumes and promotions. I guess your commentary about the response of holiday promotions, Memorial Day, Fourth of July. Curious what you're seeing and hearing from both retailers and customers in terms of response to promotions and how if they're responding to that, does that affect or impact the ability to sell on everyday prices? And sort of related to that, how generally should we be thinking about retention on pricing? I guess I've been pleasantly surprised at the ability to retain a lot of the pricing taken over the last few years. I think if you go back, your pre-IPO, there was some portion of pricing taken in the last cycle that was given back to folks in some form or another. So how do you think about that on a go-forward basis?

Mark, this is Lance. There's 2 questions there. First of all, response to promotions I think you need to look at it in 2 parts. One is the actual promotion period itself for the holidays, for example. And really an example is what we saw in Reynolds Wrap, where it's really been very effective as it has been in the past, providing that opportunity for consumers to really purchase products in front of a holiday occasion. The second part of promotions is what we call TPRs is to ensure that the pricing is correct on the shelf and getting the price points correct, which we've done very effectively with Reynolds Wrap. You could see that from the everyday purchasing, not just on promotion, but a temporary price reduction is something that extends over a longer period of time, and it's an adjustment to the shelf price to ensure that we get the price point, let's say, below $5 or $4.99 on 75-foot Reynolds Wrap. We've executed that very effectively in the household foil category. We are doing the same in the other categories. We've proven that it works in household foil and so for, waste bags, food bags and tableware products, we're evaluating the right price points and price gaps to ensure that we get the right TPRs in place for those categories as well. The second part of that is the surprise on being able to retain the pricing in this cycle. And the answer to that comes from inflation. The inflationary environment is different than it's been in past cycles. We've seen labor inflation. We've seen inflation on other other costs like packaging costs and electricity and energy costs. But, they've retreated somewhat in the last few months, but they're still elevated from what they were historically. So as a result of that, the pricing is recovering inflationary costs, not just commodity costs. And our retailer and consumers recognize that inflation is an environment that's across all products, not just in household staples.

The next question comes from the line of Lauren Lieberman with Barclays.

Great. Hopefully, that's better. You can hear me now.

Much better.

Okay. Great. Sorry about that. So I want to -- I was going to ask about gross profit per unit. Could you talk about previously around $920 million, now you're saying slightly above that, I think, for the year. But the -- and just it might be splitting hairs, but now the volumes are expected to be down a little bit and then you also have the impact of the non-retail sales. So I was just curious, I guess, where you are on or projected to be, I should say, in gross profit per unit at the end of this year versus 2019 and then scope for that building from there?

Yes. So what you can expect from a gross profit per unit basis is that you'll see sequential quarter-over-quarter improvements throughout the year. And from a return to our profit expectations, we've arrived at levels that are beyond what we expected for -- what we had in 2019. So we're progressing quite well against that overall objective.

Okay. And then I wanted to also talk about consumer behavior. And so I'll -- we know your -- the portfolio in participating in store brands is very much part of the strategy and the approach and mattering a lot today. I felt like in your prepared remarks and also in the release, there was a lot more emphasis on just there being down trading at retail. And I think it feels like we're not hearing it to the same degree from other companies. It's not perhaps is obvious in the data. So curious maybe what you think it is, whether it's about your categories, what it is about why now versus 6 months ago or longer than that when pricing was first going into place. But what's your understanding or sense of why the consumer behavior change is happening now when pricing is already pretty well established in the market. And if anything, I would expect that elasticity effect to start easing?

Yes, perhaps we overemphasized that a reading between the lines, there has not been a significant migration of private label in our categories. We've seen some migration to private label in our waste bag and our food bag business and the revision to our guide shows the strength of our integrated brand and store brand model and our diversified household products portfolio. From a category stand -- summary standpoint, private label share is up in waste and food bags, in party cups and in plastic wrap, which is a small part of the category. But private label is down in foil, foam dishes and other Reynolds Cooking and Baking products. Our integrated branded store brand model is a competitive advantage because it positions us to benefit from shifts in either directions, which is what we're emphasizing in our prepared remarks in our press release and our retailers really rely on us to provide the right category mix, and we've been doing that for years. But the relative stability that we've seen is sound economically for consumers and retailers alike. And it's our -- as I've mentioned in a lot of earnings calls, private label already represents a sizable portion of our category's consumptions and private label category share has been relatively consistent through economic cycles.

Our next questions come from the line of Andrea Teixeira with JPMorgan.

So I wanted to go back to the commentary now on elasticity and promo. And as you said, consumers and retailers in your prepared remarks, you said that they're responding well to bringing back promo to the levels before and so I want to understand because you also had mentioned before, in particular, aluminum foil that you are setting RGM and price points that were obviously more interesting for them, for kind of like protecting entry level and also allowing consumers to make choices within your brand. Can you comment on how that evolved over the last, I would say, you started like mid last year, if I understood correctly and through now. And then a second part of the question for Michael in terms of the gross margin, I think the 4 points that you had alluded to for the full year. you achieved in the quarter. Of course, there are puts and takes on productivity and all of that. Can you kind of like update us on your goal? I understand this is a moving target, and it's hard to go back to that level that we were at pandemic, but there is definitely an expectation that at some point, you're going to see that on a mixed [indiscernible] basis.

I'll answer the first part of the question, which is regarding our investment in trade and promotions. The COVID gave us the opportunity to really reset our whole trade program because, as you know, in 2020 and 2021, we really scaled back on trade promotions and focused on supply and ensuring that we had the right products in place for our retailers and consumers. We have reinvested in trade spending, but we didn't necessarily go back to the previous programs. It gave us the opportunity to completely reset and reevaluate where we had proven promotional trade programs and the right price points at new inflationary levels. And we've got programs that have been really proven and tailored to our categories and our customers. And we've proven that with the Reynolds Wrap volume that you've seen. Now we're not necessarily back to 2019 levels. It really depends on the category. And in some levels, in some cases, we're promoting more of our volume in other categories of products less. It really depends on the price points that we're looking to achieve in the specific holiday and features that we're looking to gain. So historically, prior to the pandemic, roughly 25% of our sales were on promotion in a given year. We're below that at this point. We feel our marketing spend is efficient and effective. We're seeing good share trends for our brands on our total business as we enter 2023, and we have a strong position across our categories.

And any -- I just -- I'm sorry, go ahead, Michael. i wil come back to...

I was going to add to your answer. You continue with your first point.

Yes. No, I wanted to just -- as Lance was saying, like, so should we expect and I understand the puts and takes from a shipment perspective and the timing and getting these other non-retail contracts out of the way. On an underlying basis, though, is the shipment against consumption trend similar now granted that you have some inventory to work through the pantry. When do you think? Are you planning for that to reverse itself, I believe, in the fourth quarter, if my math works right, that the fourth quarter, we will see more shipments against consumption?

Yes. I think there's 3 dimensions here, Andrea. It's a great question. One is retailer inventory and consumption from consumers. And those are in line. We monitor that very closely by retailer, by product category. And we have consistent consumption with shipments and retailer inventory. What we're referring to is what's occurred primarily in household foil and to a lesser extent, the other categories is household inventory. And we have seen a gain in household inventory in the pantry as a result primarily of the holiday promotions and the holiday period for household foil that will then work its way through in Q3. And your point, we expect that to be depleted by the end of Q3 and respond to our Q4 promotions and growth in Q4 versus prior year.

Okay. And sorry, please go ahead.

Yes, I was going to answer the question around gross margin. So if you look broadly process, we restored our unit profitability already. With gross margins of approximately 24% this year. If you look at the long-term journey, our journeys, we see ourselves getting back to the high 20s in gross margins from a percentage standpoint. The rentals recovery is planned to boost that. Obviously, it continues along the journey. We also know that Reyvolution has been a continued source and contributing to the overall gross margin improvement. And then we also were focused on driving increases through our innovation efforts. So we feel good about our journey and basically, you anticipate getting back into those high 20s.

And no timing on that yet, correct?

Yes.

[Operator Instructions] The next question is coming from the line of Peter Grom with UBS.

I guess, I just wanted to follow up quickly on Andrea's question because the implied 4Q sales guidance, really depending on where you fall in the 3Q range does seem to suggest continued sales declines in the given year. So maybe just to put a finer point, are you actually expecting volumes to return to growth as you [ informed ] that the consumers respond to the promos and that the decline is from lower price. So if you could just put a finer point on that, that would be helpful.

Sure, Peter. Absolutely. If you deconstruct the guide, we expect retail sales to be up 3% in the fourth quarter. We expect a 3% increase in the fourth quarter due to comparison. If you remember, we were lapping Q4 2022 when elasticity has really picked up. And our retail volume, if you compare it to 2019, is up 5%. And for Q4, it's up 6%. So stack growth is continuing for our brand momentum, and we are seeing growth in the fourth quarter.

Got it. That's super helpful. And then I guess, just given that exit rate...

Peter, this is Mark. Those were all volume comments. And as Lance said, they're pertaining to the retail component of the business.

Okay. I guess maybe just following up on that then, maybe how should we think about -- maybe following up on Mark's earlier question around pricing moving forward because it did sound like there may be less price give back given inflation is still high elsewhere despite moderating commodity costs. So is that right? Is that the expectation? Because I know 3Q pricing is expected to be flat which is a bit better than most were anticipating. But would you expect pricing to kind of to shift negative here in the fourth quarter? And how does that inform your view as we think about the exit rate into 2024??

We don't expect there to be any significant change in pricing in Q4. We will consider additional pricing actions if inflation picks up again, but we're not seeing pressure for increases at this time. We do have some contractual pass-through of lower commodity costs but that's offset by some of the increases we've seen in other inflationary impacts, which were ensuring that we have priced for that as well across our entire portfolio.

The next question is from the line of William Chappell with Truist Securities.

I wanted to, I guess, ask the same question on third quarter volumes a different way. I guess I would assume that as we're looking back at last year, as we got into the summer, we kind of started to lap fully lap Omicron, COVID, behavior, more people at home. So I would assume that the second quarter was kind of the last, I guess, tough comparison and third quarter would be where you had a more normalized comparison. And so by that thought process, volume should improve sequentially. Am I thinking about that wrong? Where people more at home still all the way up until September? Or just up from a consumer behavior trend, I would think that the comps get easier as we move forward.

Bill, this is Mark. Let me respond to that, and it's really to amplify something Lance said in his response to -- I believe it was Robert. In the second quarter, you can see our volumes were flat overall. And in the third quarter, if you take the midpoint of our revenue guide, we're looking for volumes to be down 4%. As Lance said, we got about a 2-point volume benefit in the second quarter from that household buy-in a product more successfully than we anticipated. So if you actually just simply move those 2 points out of the second quarter and into the third quarter, you wind up with -- I'm sorry, out of the third quarter back into the second quarter, you wind up with a minus 2 in both periods. So it's a very consistent trend. And then I want to add to something Lance said a moment about the fourth quarter, we are looking for our volumes to pick up in the fourth quarter. But again, the reason for that is we're lapping a very -- a comparatively easy compare in the fourth quarter. And then to build on something Lance said, if you actually look at our volumes in the fourth quarter compared to 2019 levels, they're up consistent with the amount of increase we're looking versus 2019 on a full year basis. So that's a very long way of saying we're looking for very consistent underlying trends. It just boils down to the nature of comparisons.

Okay. But back to my question. Am I right in saying that we're kind into a normalized period on a year-over-year comparison? Or what you already seeing kind of normalized last quarter?

You are right to say that we started having very normalized comparisons early this year. In fourth quarter last year, we did see a pickup in elasticity. So you get that comparison benefit, if you will, in the fourth quarter. And we're not looking for versus '19 improvement in volume performance. So you can actually make the case that we'll have better performance in the fourth quarter. We're not making that case by any means, but very similar comparisons because of what I just said.

Got it. And then just second, a follow-up on -- there been a lot of talk this quarter from consumer companies about weather. Obviously, your pig neck items, tableware type stuff would be affected, but I don't think you really mentioned it. Was it enough of an impact? Was it a normal summer weather-wise for your business? Any comments there?

Normal weather wise from a consumer consumption of table where, yes, we are seeing elasticity issues that I mentioned in the tableware business is the prices have increased double digits, we've seen some pullback of consumer purchasing, and we're working to adjust price points accordingly as we have in household foil. Weather events have moderately impacted some of our manufacturing operations with some power outages over a day or so, but not had any impact on consumer demand that we've tracked.

Next question is come from the line of Brian McNamara with Canaccord Genuity.

Congrats on the progress on your initiatives. So I don't mean to beat a dead horse on household inventories. But in layman's terms, is this promotional lever in foil healthy overall with the Fourth of July promotions creating pantry overload until the next promotion at the end of Q3, are these promotions required in your view? Like how do you think that would look with that.

Well, we've done holiday promotions in Memorial Day and leading in the Fourth of July, consistently prior to COVID, and it's been a very healthy improvement to our business and our share. And you can see we saw those share results and the volume uptake as a result in 2023 as well. So despite the fact that there's some household inventory build from an overall volume growth standpoint and profitability improvement. It's a very strong and good investment.

And how should investors think about the volume algorithm longer term across your business.

Our volume share?

No. volume Growth.

Yes. I would say that our volume growth is consistent with the categories. We are holding share or growing share in all of our categories and the categories are responding to some elasticity issues, which we're addressing through price points and promotions.

The next question is the follow-up from the line of Mark Astrachan with Stifel.

Just 2 things. One, on the interest expense, Michael, your guidance for 3Q, does that reflect the debt payments? Does that reflect lower rates?

Yes, it does. Both. Both.

Okay. Got it. And then just -- I know it's early and you don't want to talk about '24. I guess you had given some comments a year ago about how to think about gross profits. Anything that you can give in terms of how we think about continued recovery in gross margin and how that works with expectations for top line at this point, just maybe more hypothetically than anything else?

Yes. I think [indiscernible] broadly, it's a little too soon to talk about that at this time.

All right. I tried.

Good try, Mark.

At this time, we've reached the end of the question-and-answer session. And I'll turn the call over to Lance Mitchell for closing remarks.

Thank you, everyone, for your questions and your interest in our business and Reynolds Consumer Products. I want to extend a sincere thank you to all of our employees and especially that many employees are responsible for the ongoing and effective execution of Reynolds Cooking and Baking recovery plan. Our business overall is performing well, and we look forward to updating you with further updates throughout the year. Thank you.

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