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

Okay. We're going to get started. So next up this afternoon, we are pleased to welcome Reynolds Consumer Products. We're joined by the company's President and CEO, Scott Huckins; and the company's CFO, Nathan Lowe. So guys, thanks so much for being here again this year. Get right into it. So Scott, when you first stepped into the CEO role, you outlined a number of initiatives aimed at building a stronger and more resilient Reynolds, including innovation, RGM, productivity and talent. As we sit here today, what have you learned? What has exceeded your expectations? And where are you seeing the biggest opportunities still ahead?

First of all, good to see you. Thanks for having us. So I think the way we recap it is three pillars of priorities we've been working against since early '25. People and talent, one; volume growth-related initiatives and work, two; and then supply chain productivity across the enterprise, three. And then I'll unpack a little bit of each of them. So on people and talent, we've been making investments across the executive team. You see some new leaders, including our Head of Sales, as an example. But we've also been making investments on the front end of the business below that level, whether it's sales, marketing, RGM you got at in your question. Second large area of talent emphasis has been in operations and supply chain, which feeds sort of the next two pillars. So in volume growth, under Carlen Hooker's direction, our new Head of Sales, we're really complementing two topics, which is we go through our entire book of business, look at our categories, look at our customers and just imagine very targeted share gap selling efforts with a complement of a much more robust RGM capability. That's the first piece. Second piece on innovation would be really a philosophical approach of fewer, bigger, better, meaning we're adamant about making sure we're aligning our people and financial resources against what we think are the best ideas. And I think we've had some demonstration of progress there. Then we go to the third pillar, probably the most robust or most elements across supply chain productivity. First element is we've been implementing and installing lean principles across the entire set of our manufacturing plants. Number two, we've invested in technology in the plants, meaning specifically having measurement tools at the line level in our plants, which is where action really gets taken, and that's sort of the harbinger of productivity. Across supply chain, we have a 17 plant network distribution centers, constantly looking for efficiencies on inbound materials and then outbound shipments to customers or customers who pick up. So that's sort of the portfolio of work that you asked about. And I'd say that's the what -- the why is what we're after is driving a more fundamentally profitable business that, at least in part, that unlocks further investment back into the business for growth. In terms of expectations and where we are, I'd say we're about where I thought we would be. These things take time. But we certainly have demonstrated this year progress against each of the initiatives flowing through the financial statements. But I think there's still a lot left to do. I think we've got more opportunity to have more persistent volume growth opportunities ahead of us from the work we've talked about. And I think there's still a long runway of both productivity and then cost out work we can do from an automation capital investment standpoint. So that's a fairly long answer to your question.

So Nathan, how would you say those initiatives are showing up in the financial performance of the company currently? Because despite an inflationary cost environment, continued pressure on the consumer, you guys have sustained productivity, expanded margins and continue to grow earnings. So what do you think is different about the business that's allowing you to deliver those results? Why are these improvements sustainable? And again, how are we seeing all this in the financial performance?

I think there's a couple of questions...

I'd go one by one.

I matched his long answer with a long one.

There we go. That's fair. So I think as you try to trace those initiatives into the P&L, probably the most prominent one would be the productivity initiatives by some measure. Within that, where we've made the most progress would be on manufacturing, and there's a number of things within that, too. But also supply chain, logistics, distribution, other efficiencies through that entire network. And our sourcing team continues to deliver value both in the P&L and from a cash flow perspective. So how does that actually show up in the results? 9% increase in gross profit in the 2026 year-to-date result despite volumes being slightly down. So when you put that together, it just means the profitability of business has considerably improved. It shows up as 130 basis points of margin expansion, but there's a lot of dilutive impact. To that math, given the quantum of pricing that's come through, which the aim, of course, is just to offset the commodity pressure there. And you say what's different? I think probably what's different is in this inflationary environment, stacking 3 quarters of consecutive earnings growth. A lot of it has to do, sure, the productivity helps, but the RGM capabilities really leveraging those and being very agile and precise in how we're pricing, also trade efficacy and any other number of price pack architecture adjustments. I think that's really been a benefit this time around in this inflationary cycle. And probably, importantly, we're still delivering very strong cash flow. So while we're delivering strong cash flow and profit we keep investing back in the business for growth. And as Scott mentioned, growth is certainly evidenced in the results, too, in that we've taken share across the categories taken as a whole. But importantly, a lot of the investments we're making now are about growth in the future. So moving beyond share gains moving towards growing the category and taking the brand into adjacent categories.

Okay. Great. I'd love to get a high-level view of category health, as you guys see it today. Consumer has been under meaningful pressure, tariff-driven inflation, bifurcation by income cohort, et cetera. So how are your categories performing? And do you feel like the worst is behind you from a consumer category standpoint?

I think the place to start is if my one-word answer would be stable. As we think about that question, Lauren, whether we look year-to-date, we look quarter-to-date, we just focus on track channel data or scanner data generally across our categories, a few exceptions I'll cover, we actually see retail dollar takeaway growth despite all the factors that you mentioned. So I think what that tells us is the consumer in our categories is validating that these categories are everyday use items. Our brands and store brand offerings are certainly resonating. The couple of exceptions, I think, are interesting is these are low single-digit declines in dollar takeaway would be in the food storage category, down 1 or 2 points year-to-date. And then in the tableware category. Just to spend a second on that. We would have expected the tableware category to be a bit more under pressure because generally, that is much more of a convenience discretionary purchase relative to the everyday use of the other offerings. But having said all of that, in each of food storage and in tableware, we've taken share. So that would be my attempt to recap it. But I think the bottom line is the consumer has demonstrated resilience with their wallet, seeing retail takeaway dollar growth across the set broadly despite the factors you mentioned.

Okay. Let's talk a little bit about the role of innovation and marketing and keeping category engagement strong. And maybe update us also on how your innovation process has evolved?

So I guess on innovation, I think as we said a few minutes ago, I'd start with very, very committed to fewer bigger bets to create that disciplined structure and alignment of resources against the opportunities. We've actually done a lot of work this year on the consumer. So not surprised if we think about innovation. It's consumer back. And I think that the work seems to have been twofold. The first is a complete update refresh of consumer segmentation, timely in this sort of an environment. Number 2 is the evolution of consumer trends in center store staples, right? So that's the raw material, if you like, that then creates the incubator for ideation in innovation, building those then out across each of our major categories and trying to convert that into a pipeline for years to come. I think, if anything, innovation is even more important today that in good economic times because of the differentiation capability. So I think that's been the take on innovation. On marketing, I think the approach is the same, meaning what we're all after is make sure that the brands are healthy. They're vibrant and increasingly, importantly, that they resonate with different economic cohorts in different age cohorts, all shoppers served are different. I think that what we've discovered as we've gone through that work this year is the importance of making sure we're being thoughtful about marketing and promotion in two dimensions: one, the obvious, which is a brick-and-mortar mindset; but two, from a digital mindset. There's certainly evidence that, that consumer continues to use more and more digital capability in the shopping journey. So what we continue to think about is are we allocating the resources to the right part of the funnel, whether we're talking about conversion-oriented marketing, top of funnel awareness marketing, again, balancing digital and brick-and-mortar. That's been the -- to the evolution of our thought process.

Okay. Anything new in the portfolio innovation wise, that's worth highlighting or that's coming out...

I wouldn't say anything new. I think we continue to see good success just kind of a tour of the portfolio. When we think about the waste bag business, we continue to find that the colors and scents resonate with a healthy portion of the consumer and certainly has been relevant to our journey, gaining share there. I think innovation is probably deceptively prominent in the food bag business. I think as we printed the second quarter, we had significant volume growth, but it was the complement of both the branded business, but also some innovation in the store brand category. So just think about value concepts for the consumer value engineering-related concepts. I think in the Reynolds business, we've talked a lot about really trying to invest behind the evolution of cooking. Most recent launch would have been a countertop prep paper, which is still very, very new in market, but essentially a new occasion, which is relevant because we think more and more about occasion-based product assortment innovation. And then lastly, I think in tableware, we've talked a lot about the evolution of sustainability in those concepts and investing behind more sustainable materials, balancing that with what consumers want and resonate. So that's sort of a recap of what we've had in play for this year.

Okay. You've mentioned online mentioned under consumer cohorts. So let's just talk for a second about e-comm, which is an increasingly important channel for you guys. You've discussed in the past the emerging dynamic of agentic shopping, AI-driven purchasing decisions. So tell us a little bit like how you position yourself in this environment? Do you see this as a brand advantage or a risk? And what are the things you're doing to make sure if you are doing -- that you show up in those searches and in those ways of shopping?

Great question. I think something we've been studying a lot just for folks who might be new to the company is we've been pouring over a bunch of research that's just trying to get our arms around how relevant is sort of AI agentic in shopping. And most of the sources we see suggest that the majority of the U.S. consumer somewhere along the journey, so it could be researching, it could be awareness of categories or offerings are using AI. So I'd just start with that as an opening point. From a sort of fit with opportunity, I think that the staples category broadly where we play is very adaptive to the digital shelf. And I say that, Lauren, because we're generally talking about high loyalty, high repeat purchase, which lends itself, we think, very, very well to auto replenishment or subscription-based models. We shared a few proof points of our progress there on the Q2 call. I think we highlighted that one of our waste bag offerings was actually a top 5 Prime Day offering. And number two, I think we had 30 points or so of growth in our branded storage bag business relative to the category. So these are evergreen proof points, but it demonstrates that I think we're on the right footing. On your resource question, which is a good one. Two things. One, we actually brought into the organization recently a new Chief Digital Officer, specifically titled that way so that we're migrating our resource investment, again, people and dollars to be very intentional about how we're investing in that digital relevance. And I think your part about the brands is very important because at least as we think about it, it's making sure that the brand is prominent along the early part of the journey, right? So as a consumer is thinking about an occasion or a need state, the brand is the pull mechanism that's attracting that consumer, not just at the occasion, the need state, the solution, but specifically depending on the item, a Hefty or a Reynolds item. So that's a bit about how we've thought about it and gone about it. But it's clear that there's an escalation, we think, in the consumers' usage of those tools.

Okay. Great. Let's talk a little bit about competition. So in waste bags, you've had a long track record of share gains, but there's been some recent pressure. So maybe let's just start there and then we can talk about food bags separately. So just current read on the competitive environment there and how that's been evolving.

Well, I guess I would say, Lauren, the irony is that both waste and food actually have pretty similar dynamics as we would assess. So it's a similar story, so I'll maybe do it that way. But what we've seen really from the beginning of the year throughout the year has been a relatively noticeable step change in the level of competition from premium brands. And for those of you who don't know our company, we play in what we call a performance brand mindset and strategy. So -- but that's the question. So we've seen significantly more competition from premium brands. I think it's important for folks who don't know the company we're generally #1 or 2 in our categories, just to set the stage for the discussion. And so we think about, this is an environment where the consumer is under pressure. I don't think there's a debate about that, we've seen increased competition. And then lastly, we've had all of this variety of commodity inflation deal with in pricing. And so I think as we reflect on performance, we're actually pretty pleased with where we are. In that, we've stayed true to the performance brand philosophy, price-pack architecture. And if we look at, say, the first half results, we either held or gained share when we assess a 2-year stack, we gained share materially across both of those categories. So it's like you would expect, we continue to look every day, every week at making sure the pack architecture is landing, be prepared to make surgical adjustments if needed. But that's the dynamic. And I think we feel so far has validated our approach.

Okay. There's pricing going in and come through, right? So are you seeing any change yet in the competitive environment in waste bags? Do you think that's going to come as everybody puts that price increase through?

I think the short answer is it's evolving. I think we shared on the Q2 call, the quantum of resin-related input costs is pretty substantial. So our operating expectation would be that folks would generally price, just given the magnitude. But as it always is how that gets deployed and when it gets deployed, price-pack architecture is fluid. So I would say no major shocks or surprises of what we've seen. But I think, 8 weeks in, if you like, in terms of looking at a track channel, I don't think we would have a firm and final point of view. If anything, we'd say we're glad that we took the approach as we philosophically do being #1 or 2 in the category. We believe that we have a responsibility to provide some price leadership. And I think we've demonstrated that so that at least now we can say, okay, our price is on shelf, gets in the marketplace, let's spend our time analyzing the performance against the opportunity set. And if we need to make surgical adjustments, we will. But you'll probably have a more informed view of the third quarter call because, like I said, we're 8 weeks in.

Yes. Okay. You've spoken to commodity-based pricing also in Reynolds Cooking & Kitchen. Aluminum costs have been moving around. Can you just explain how your commodity pricing mechanism works where aluminum stands today? And when should we expect that to flow through to the P&L, some of the aluminum inflation? And I guess, also, are there other parts of the cost basket beyond aluminum that we should be watching for that business?