What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-05 compared with 2024-02-07 · 61 added, 57 removed, 377 unchanged (24% of the section changed)

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We are a market-leading consumer products company with a presence in 95% of households across the United States.

We produce and sell products across three broad categories:

cooking products, waste and storage products and tableware.

We produce and sell products that people use in their homes for cooking, serving, cleanup and storage.

We sell our products under iconic brands such as Reynolds and Hefty and also under store brands that are strategically important to our retail partners.

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We have no significant branded competitor in this market.

Reynolds is one of the most recognized household brands in the United States and has been the top trusted brand in the consumer foil market for over 75 years, with greater than 50% market share in most of its categories.

Reynolds is one of the most recognized household brands in the United States, with 98% brand awareness, and has been the top trusted brand in the consumer foil market for over 75 years, with greater than 50% market share in most of its categories.

We also offer more sustainable solutions, such as Reynolds Wrap 100% recycled aluminum, unbleached parchment paper made with a chlorine-free process and coreless wax paper, which uses less packaging material than traditional wax paper rolls.

• Hefty Waste & Storage:

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We have the #1 branded market share in the U.S.

large black trash bag and slider bag segments, and the #2 branded market share in the tall kitchen trash bag segment.

Our robust product portfolio in this segment includes a full suite of products, including sustainable solutions such as compostable bags, bags made from recycled materials and orange bags through the Hefty ReNew Program.

large black trash bag segment, and the #2 branded market share in the slider bag and tall kitchen trash bag segments.

Our robust product portfolio in this segment includes a full suite of products, including sustainable solutions such as blue and clear recycling bags, compostable bags, bags made from recycled materials and orange bags through the Hefty ReNew Program.

• Hefty Tableware:

Through our Hefty Tableware segment, we sell both branded and store brand disposable and compostable plates, bowls, platters, cups and cutlery.

Our Hefty branded products include dishes and party cups.

Through our Hefty Tableware segment, we sell both branded and store brand disposable and compostable plates, bowls, platters, containers, cups and cutlery.

Our Hefty branded products include dishes, party cups, cutlery and containers.

Hefty branded party cups are the #1 party cup in America measured by market share.

Our branded products use our Hefty brand to represent both quality and great value, and we bring this same quality and value promise to all of our store brands as well.

Our branded products use our Hefty brand to represent both quality and value, and we bring this same quality and value promise to all of our store brands as well.

We sell across a broad range of materials and price points in all retail channels, allowing our consumers to select the product that best suits their price, function and aesthetic needs.

These materials include sustainable solutions, such as Hefty ECOSAVE and Hefty Compostable Printed Paper Plates.

In 2023, we also tapped into the nostalgia trend and brought back Zoo Pals plates, garnering 3.7 billion media impressions.

In 2024, we increased the post-consumer recycled content in some of our cups and we added compostable party cups to our assortment.

• Presto Products:

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food storage bags, trash bags, reusable storage containers and plastic wrap.

Presto Products is a market leader in food storage bags and differentiates itself by providing access to category management, consumer insights, marketing, merchandising and R&D resources.

Presto Products is a market leader in food storage bags and differentiates itself by providing access to category management, consumer insights, marketing, merchandising and research and development (“R&D”) resources.

Presto Products was the first in the U.S.

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Our scale across household aisles and ability to offer both branded and store brand products enable us to grow the overall category.

Through our category captain level advisor roles with our retail partners, we offer marketing and consumer shopping strategies, both in store and online, which expand usage occasions and stimulate consumption.

Through our category captain level advisorship roles with our retail partners, we offer marketing and consumer shopping strategies, both in store and online, which expand usage occasions and stimulate consumption for our categories.

Costs for Raw Materials, Energy, Labor and Freight

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holidays in our fourth quarter, primarily due to the holiday use of Reynolds Wrap, Reynolds Oven Bags, Reynolds Parchment Paper and disposable aluminum pans.

Our tableware products generally have higher sales in the second quarter of the year, primarily due to outdoor summertime use of disposable plates, cups and bowls.

Our tableware products generally have higher sales in the second and fourth quarters of the year, primarily due to outdoor summertime and holiday uses of disposable plates, cups, bowls and cutlery.

Sustainability

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We intend to continue sustainability innovation in our efforts to be at the leading edge of recyclability, renewability and compostability in order to offer our customers environmentally sustainable choices.

During the year ended December 31, 2023, we acquired privately held Atacama Manufacturing Inc., which is an innovation driven company that designs, formulates, manufactures and commercializes products that include recycled or renewable, plant-based materials.

Our 2023 acquisition of privately held Atacama Manufacturing Inc.

enhanced our innovation pipeline with sustainable products from plant-based resins.

Non-GAAP Measures

In this Annual Report on Form 10-K we use the non-GAAP financial measures “Adjusted EBITDA”, “Adjusted Net Income” and “Adjusted Diluted Earnings Per Share” (“Adjusted EPS”), which are measures adjusted for the impact of specified items and are not in accordance with GAAP.

We define Adjusted EBITDA as net income calculated in accordance with GAAP, plus the sum of income tax expense, net interest expense, depreciation and amortization and further adjusted to exclude IPO and separation-related costs, as well as other non-recurring costs.

We define Adjusted EBITDA as net income calculated in accordance with GAAP, plus the sum of income tax expense, net interest expense, depreciation and amortization and as may be further adjusted to exclude IPO and separation-related costs, as well as other non-recurring items, if applicable.

We define Adjusted Net Income and Adjusted EPS as Net Income and Earnings Per Share (“EPS”) calculated in accordance with GAAP, plus IPO and separation-related costs and other non-recurring costs.

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Adjusted EBITDA (Non-GAAP) $ 678 $ 636 $ 546

(1) Reflects costs during the years ended December 31, 2022 and 2021 related to our separation to operate as a stand-alone public company as well as costs related to the IPO process.

No such costs were incurred during the year ended December 31, 2023.

(1) Reflects costs during the year ended December 31, 2022 related to our separation to operate as a stand-alone public company as well as costs related to the IPO process.

No such costs were incurred during the years ended December 31, 2024 and 2023.

The following table presents a reconciliation of our net income and diluted EPS, the most directly comparable GAAP financial measures, to Adjusted Net Income and Adjusted EPS:

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Adjusted (Non-GAAP) $ 352 210.4 $ 1.67 $ 298 210.0 $ 1.42 $ 269 209.9 $ 1.28

(1) Amounts are after tax, calculated using a tax rate of 23.6% for the year ended December 31, 2022 and 24.6% for the year ended December 31, 2021, which is our effective tax rate for the periods presented.

(1) Amounts are after tax, calculated using a tax rate of 23.6% for the year ended December 31, 2022, which is our effective tax rate for that period.

Results of Operations

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Detailed comparisons of revenue and results are presented in the discussions of the operating segments, which follow our consolidated results discussion.

Certain discussions in this section provide a breakdown of net revenues between our retail business and our non-retail business.

Certain discussions in this section provide a breakdown of net revenues between our retail business and non-retail business.

Our retail business net revenues consist of sales to grocery stores, mass merchants, warehouse clubs, discount chains, dollar stores, drug stores, home improvement stores, military outlets and eCommerce retailers.

Our non-retail business net revenues consist of sales to food service customers, which are classified as related party revenues, and industrial customers.

Our non-retail business net revenues consist of aluminum sales to food service customers, which are classified as related party revenues, and industrial customers.

Discussions of the year ended December 31, 2023 items and comparisons between the year ended December 31, 2023 and the year ended December 31, 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed on February 7, 2024.

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Price Volume/Mix Total

Retail Non-Retail

Reynolds Cooking & Baking — % (1) % (1) % (2) %

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Total net revenues decreased by $61 million, or 2%, to $3,695 million.

The 2% decrease was driven by a 2% volume decline and 1% lower pricing in our non-retail business, as well as a 2% volume decline in our retail business, partially offset by 3% higher pricing in our retail business.

This resulted in a net revenue decline of $71 million in our non-retail business, which is in our Reynolds Cooking & Baking segment, partially offset by a $10 million increase in net revenue in our retail business across all segments.

The 2% decrease was driven by lower volume and lower pricing.

Cost of Sales .

Cost of sales decreased by $97 million, or 3%, to $2,717 million.

The decrease was primarily driven by lower volume and lower material and manufacturing costs, as well as lower logistics costs.

The decrease was primarily driven by lower material and manufacturing costs, as well as lower volume, partially offset by higher logistics costs.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses ("SG&A") increased by $90 million, or 26%, to $430 million, primarily due to higher personnel costs, increased investment in advertising and higher professional fees.

Selling, general and administrative expenses (“SG&A”) decreased by $1 million to $429 million.

Other Expense, Net.

Other expense, net decreased by $22 million, or 100%, to $0 million.

The decrease was primarily attributable to IPO and separation-related costs in the prior year period that did not reoccur in the current year period.

Other expense, net was zero in each of the twelve months ended December 31, 2024 and 2023.

Interest Expense , Net .

Interest expense, net increased by $43 million, or 57%, to $119 million.

The increase was primarily due to higher interest rates, partially offset by the lower principal balance on our term loan facility.

Interest expense, net decreased by $21 million, or 18%, to $98 million.

The decrease was primarily due to a lower outstanding principal balance on our external debt facilities as a result of voluntary principal payments made on our term loan facility.

Income Tax Expense.

We recognized income tax expense of $95 million on income before income taxes of $393 million (an effective tax rate of 24.1%) for the year ended December 31, 2023 compared to income tax expense of $80 million on income before income taxes of $338 million (an effective tax rate of 23.6%) for the year ended December 31, 2022.

Our effective tax rate declined by 2.2%, from 24.1% for the year ended December 31, 2023, to 21.9% for the year ended December 31, 2024.

The decrease was primarily due to the recognition of a discrete tax benefit for the remeasurement of deferred tax liabilities.

Adjusted EBITDA.

Adjusted EBITDA increased by $42 million, or 7%, to $678 million.

The increase in Adjusted EBITDA was primarily due to previously implemented pricing actions and lower material and manufacturing costs, as well as lower logistics costs, partially offset by higher SG&A.

The increase in Adjusted EBITDA was primarily due to lower material and manufacturing costs, partially offset by higher logistics costs and the impact of lower net revenues.

Segment Information

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Reynolds Cooking & Baking total segment net revenues decreased by $26 million, or 2%, to $1,247 million.

The decrease in net revenues was due to a $71 million decline in our non-retail business, partially offset by a $57 million increase in our retail business.

The decrease in net revenues was primarily due to lower non-retail volume.

Adjusted EBITDA .

Reynolds Cooking & Baking Adjusted EBITDA increased by $38 million, or 21%, to $222 million.

The increase in Adjusted EBITDA was primarily driven by the optimization of our retail product portfolio mix, lower material and manufacturing costs and lower logistics costs, partially offset by an increased investment in advertising.

The increase in Adjusted EBITDA was primarily driven by lower material and manufacturing costs.

Hefty Waste & Storage

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Total Segment Net Revenues .

Hefty Waste & Storage total segment net revenues decreased by $4 million, to $942 million.

The decrease in net revenues was primarily due to lower volume, mostly offset by higher pricing due to previously implemented pricing actions.

Hefty Waste & Storage total segment net revenues increased by $17 million, to $959 million.

The increase in net revenues was primarily due to higher volume and timing of promotional activities.

Adjusted EBITDA.

Hefty Waste & Storage Adjusted EBITDA increased by $11 million, or 4%, to $272 million.

The increase in Adjusted EBITDA was primarily driven by higher pricing due to previously implemented pricing actions and lower material and manufacturing costs, as well as lower logistics costs, partially offset by lower volume and an increased investment in advertising.

The increase in Adjusted EBITDA was primarily driven by lower material and manufacturing costs and the benefit of higher net revenues, partially offset by higher logistics costs.

Hefty Tableware

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Hefty Tableware total segment net revenues decreased by $49 million, or 5%, to $918 million.

The decrease in net revenues was primarily due to lower volume, partially offset by higher pricing due to previously implemented pricing actions.

The decrease in net revenues was primarily due to lower foam volume driven by foam-related consumer behavior and regulatory pressure, as well as lower pricing.

Adjusted EBITDA.

Hefty Tableware Adjusted EBITDA increased by $40 million, or 30%, to $174 million.

Hefty Tableware Adjusted EBITDA decreased by $27 million, or 16%, to $147 million.

The decrease in Adjusted EBITDA was primarily driven by the impact of lower net revenues.

Presto Products

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Total Segment Net Revenues.

Presto Products total segment net revenues decreased by $11 million, or 2%, to $593 million.

The decrease in net revenues was primarily due to lower volume.

Presto Products total segment net revenues increased by $3 million, or 1%, to $596 million.

The increase in net revenues was primarily due to the timing of the pass through of higher commodity costs.

Adjusted EBITDA .

Presto Products Adjusted EBITDA increased by $18 million, or 16%, to $130 million.

The increase in Adjusted EBITDA was primarily driven by lower material and manufacturing costs, as well as lower logistics costs, partially offset by lower volume.

The increase in Adjusted EBITDA was primarily driven by lower material and manufacturing costs and the benefit of product portfolio optimization.

Portions of our business historically have been moderately seasonal.

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holidays in our fourth quarter, primarily due to the holiday use of Reynolds Wrap, Reynolds Oven Bags, Reynolds Parchment Paper and disposable aluminum pans.

Our tableware products generally have higher sales in the second quarter of the year, primarily due to outdoor summertime use of disposable plates, cups and bowls.

Our tableware products generally have higher sales in the second and fourth quarters of the year, primarily due to outdoor summertime and holiday uses of disposable plates, cups, bowls and cutlery.

Liquidity and Capital Resources

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Net cash used in financing activities (346) (457)

Increase (decrease) in cash and cash equivalents $ 77 $ (126)

Effect of exchange rate on cash and cash equivalents (1) —

Net increase in cash and cash equivalents $ 22 $ 77

Cash provided by operating activities

Net cash from operating activities increased by $425 million, or 194%, to $644 million.

The increase was primarily driven by improved earnings and the benefit of various working capital reduction initiatives.

Net cash from operating activities decreased by $155 million, or 24%, to $489 million.

The decrease was primarily driven by the normalization of inventory levels following significant reductions implemented in the year ended December 31, 2023.

This was partially offset by other working capital optimization initiatives and improved earnings.

Cash used in investing activities

Net cash used in investing activities decreased by $18 million, or 14%, to $110 million.

The decrease was driven primarily by decreased cash outlays for capital expenditures.

Net cash used in investing activities increased by $10 million, or 9%, to $120 million due to an increase in capital spend.

Cash used in financing activities

Net cash used in financing activities increased by $240 million, or 111%, to $457 million.

The increase was primarily attributable to voluntary principal payments related to our Term Loan Facility that were made throughout the year ended December 31, 2023.

Net cash used in financing activities decreased by $111 million, or 24%, to $346 million.

We made voluntarily principal payments of $150 million during the year ended December 31, 2024 compared to voluntary principal payments of $250 million during the year ended December 31, 2023.

External Debt Facilities

In February 2020, we entered into the External Debt Facilities which consists of a $2,475 million Term Loan Facility and a Revolving Facility that provides for additional borrowing capacity of up to $250 million, reduced by amounts used for letters of credit.

In February 2020, we entered into the External Debt Facilities which consists of a $2,475 million Term Loan Facility and a Revolving Facility that provided for additional borrowing capacity of up to $250 million, reduced by amounts used for letters of credit.

In February 2023, we amended the External Debt Facilities (“Amendment No.

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2”) to extend the maturity date of the Revolving Facility by one year.

In October 2024, we further amended our External Debt Facilities (“Amendment No.

3”) to replace the undrawn $250 million revolving facility maturing in February 2026 with an undrawn $700 million revolving facility maturing in October 2029.

Other than the foregoing, the material terms of the External Debt Facilities, as amended by Amendment No.

1, Amendment No.

2 and Amendment No.

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The aggregate notional amount of our interest rate swaps still in effect as of December 31, 2024 was $1,150 million, and the SOFR is fixed at an annual rate of 0.40% to 3.40% (for an annual effective interest rate of 2.15% to 5.15%, including margin).

These interest rate swaps hedge a portion of the interest rate exposure resulting from our Term Loan Facility for periods ranging from two to three years.

These interest rate swaps hedge a portion of the interest rate exposure resulting from our Term Loan Facility for periods ranging from one to two years.

The Term Loan Facility contains customary mandatory prepayments, including with respect to excess cash flow, asset sale proceeds and proceeds from certain incurrences of indebtedness.

The Borrower may voluntarily repay outstanding loans under the Term Loan Facility at any time without premium or penalty, other than customary breakage costs with respect to SOFR based loans.

During the year ended December 31, 2023, we made voluntary principal payments of $250 million related to the Term Loan Facility, which were not subject to a prepayment premium.

During the years ended December 31, 2024 and 2023, we made voluntary principal payments of $150 million and $250 million, respectively, related to the Term Loan Facility, which were not subject to a prepayment premium.

Subsequent to December 31, 2024, we made a voluntary principal payment of $50 million related to our Term Loan Facility.

Amortization and maturity

The Term Loan Facility matures in February 2027.

The Term Loan Facility amortizes in equal quarterly installments of $6 million, which commenced in June 2020, with the balance payable on maturity.

During the year ended December 31, 2023, we made voluntary principal payments of $250 million related to our Term Loan Facility, which were first applied to pay the remaining quarterly amortization payments in full, with the residual balance applied to the outstanding principal balance due at maturity.

As amended, the Revolving Facility matures in February 2026.

As a result of previous voluntary principal repayments, we have no further quarterly amortization payments due on the Term Loan Facility.

As amended, the Revolving Facility matures in October 2029.

Guarantee and security

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to sell certain accounts receivable up to $95 million.

We had no outstanding balance owed under the factoring arrangement as of December 31, 2023.

The outstanding balance owed under the factoring arrangement as of December 31, 2022 was $15 million.

We had no outstanding balance owed under the factoring arrangement as of December 31, 2024 and 2023.

Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the consolidated balance sheet at the time of the sales transaction.

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All outstanding amounts related to suppliers participating in the SCF are recorded within accounts payable in the consolidated balance sheet and associated payments are included as an operating cash flow in the consolidated statement of cash flows.

As of December 31, 2023, the amount of obligations outstanding that we have confirmed as valid under the SCF was $19 million.

As of December 31, 2024 and 2023, the amount of obligations outstanding that we have confirmed as valid under the SCF were $12 million and $19 million, respectively.

During the year ended December 31, 2024, cash dividends totaling $0.92 per share were declared and paid.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis