Ladies and gentlemen, thank you for standing by. And welcome to the Reynolds Consumer Products Fourth Quarter and Fiscal Year 2019 Earnings. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded [Operator Instructions].I would now like to hand the conference over to your speaker today, Ms. Katie Turner for opening remarks. Please go ahead, ma'am.

Thank you, Katherine. Good morning. And thank you for joining us on Reynolds Consumer Products fourth quarter and fiscal year 2019 earnings conference call. On the call today are Lance Mitchell, President and Chief Executive Officer and Michael Graham, Chief Financial Officer. Nathan Lowe, Senior Finance Director and Chris Mayrhofer, Vice President and Corporate Controller, will also be available for Q&A.During the course of this call management we make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectation and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to Reynolds Consumer Products Annual Report on Form 10-K and other reports filed from time-to-time with the securities and exchange commission and press release issued this morning for detailed discussion of risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note management's remarks today will focus on non-GAAP or adjusted financial measures. A reconciliation of GAAP results to non-GAAP financial measures is available in the earnings release.The company's also prepared a few presentation slides, which are posted on its Web site under the investor relations heading. This call is being webcast and archive of it will also be available on the Web site. And now, I'd like to turn the call over to Lance Mitchell.

Hello everyone. I'm happy to introduce Reynolds Consumer Products during our first call as a public company after our successful IPO and debt offering in January. But first, I'd like to take a moment to address coronavirus, which is at the forefront of our minds and a primary concern globally. Our deepest condolences and prayers go out to those affected by the coronavirus and our top priority at Reynolds is keeping our employees, customers, suppliers and their families safe during this time.The situation continues to evolve on a local and global level and we're taking guidance from relevant authorities to stand ready to act accordingly. At Reynolds we believe that our focus on durable long-term demand and expectation of stable growth with extremely high brand awareness positions us well to deliver growth in 2020 and beyond.Since the inception of Reynolds Consumer Products almost a decade ago, the teamwork of our organization and our alignment to the RCP focus, which is essentially our vision, mission and values, is how we achieved the growth that has enabled us to move to the next chapter for our company. My sincere appreciation and congratulations to all the employees of our company for this achievement and on behalf of our employees, I'd like to welcome all of our new investors. You could rest assured that we’ll continue to work hard to build our business sustainably and responsibly for all of our stakeholders over the long-term as we've always done.I am pleased that our fourth quarter and our fiscal year 2019 financial results were in-line with the estimates we provided during the IPO roadshow. We continued to champion our categories and grow with our customers as consumer products preferences evolve. By remaining focused on durable long-term demand, we continue to expect stable growth and extremely high…

Thank you, Lance and good morning everyone. It's great to be speaking with you on our first earnings call as a public company. We are happy to report that our adjusted EBITDA for fiscal year 2019 was $655 million compared to $647 million in 2018. This is in line with the expectations we provided during our IPO roadshow. I am proud of how our team has performed over the last three years as we faced difficult headwinds, which were commodity inflation, freight and other costs. Through our revolution initiatives and pricing power, we demonstrated our ability to offset these headwinds by maintaining adjusted EBITDA. Now that these challenges have mostly subsided, we expect to benefit moving forward.Turning to the quarter, total net revenues in fourth quarter of 2019 were $835 million compared to $907 million in the fourth quarter of 2018. As Lance mentioned, this is in line with the net revenue estimates we provided of $827 million to $843 million during our IPO. This decrease was expected after unusually high demand in the fourth quarter of 2018 as customers increase inventory levels due to uncertainty regarding an availability of future transportation. No changes made earlier in fiscal 2019, including the exit of certain low margin store branded businesses also impacted net revenue, along with the impact of lower pricing as we adjusted pricing in response to lower commodity costs.Adjusted EBITDA was $214 million in the fourth quarter of 2019 compared to $224 million in the fourth quarter of 2018. We are pleased that this was also in line with our estimates for adjusted EBITDA of $209 million to $219 million also noted during our IPO. The decrease in adjusted EBITDA was expected and primarily due to the declining net revenues for reasons discuss earlier, particularly in the customer inventory…

Thanks, Michael. We're all excited about those who have taken an equity stake in our company and those who will join us to participate in the upward trajectory of Reynolds Consumer Products. I'd now like to ask the operator to open the call up for questions.

Thank you [Operator Instructions]. And our first question comes from Jason English with Goldman Sachs.

I appreciate the comments on coronavirus and the impact you're seeing, the other area where we've seeing coronavirus and the [concentration] impacting is commodity trends. We have a little less near-term visibility into what your commodity basket is doing. So I was hoping maybe to begin with you can enlighten us on what you're seeing in terms of input costs?

It's really early days of what we're seeing from commodity costs as a result coronavirus. Our forward guidance is based on what we've seen to-date. And we believe that if the current prices that we are seeing remain at this level or decrease, there’ll be some modest tailwind for our earnings going forward.

And the follow up relates to the impact on pricing, if you do see deflation going forward. How much of that would you expect, if any, to be passed through in pricing? And we don't have a lot of clarity right now on how volume and price finished in the fourth quarter. Can you talk about the trends you're already seeing in terms of your volume and price performance?

Well, I'll talk about first about what we're projecting going forward from a pricing standpoint. And it's really difficult to do that but I will tell you, and we've managed a lot of commodity cycles over the course of Reynolds Consumer Products’ history over the last 10 plus years. And typically when commodity products go down, we share that with the retailers and the consumers and conversely when commodity costs go up, we pass those on. So we will see some pricing changes we would expect across the market as these commodity costs continue to decrease. But to give me an exact percentage it's very dynamic and it's a case-by-case basis. Regarding Q4, I'll turn that over to Nathan for some details.

The volume price mix story for the quarter is really consistent with the full year things. In the 10-K, you'll see full year [indiscernible] bridges, and we'll continue to expose these bridges as we release our quarterly results going forward. Firstly, price is relatively flat with the exception of Reynolds where we work to move shelf prices down between the key retail thresholds. Moving on to volume, price and mix for the volume mix I should say after the quarter, volume was down. There were really three main drivers behind that the first, which we've talked about at length is the impact of the Q4 2019 retailer pull forward as they were concerned about availability of transportation. So we were lapping that tougher comp there. And then we had lower sales in our low margin reroll and food service business and we also exited low margin private label business through there.

Our next question comes from Lauren Lieberman with Barclays.

One of the things I've been asked a bit about since the IPO is just strategically how you guys think about private label versus branded mix in your business. And so I just thought as much as the overview that you gave in your prepared remarks was great. One thing we didn't touch on very much there was just from a strategic fit on how you manage that, whether you're really getting more of your resources behind private label versus branded business at any given point in time and how you kind of see the mix of your business evolving and I guess with your focus on the Hefty and Presto businesses, in particular will be great.

So Lauren, we managed that on a very balanced basis. As you look at our portfolio, our branded and our store brand business is almost 50-50. So from a resourcing standpoint, we are resourcing it accordingly in a very balanced way across the portfolio. We are focused on growing the total category and by doing that we make sure that we're managing both the store brands and our brands equally to ensure that total growth. As you look at the historical growth rates across these categories and all of them with the exception of Tableware, the last five years the private label versus brand and these categories has been very stable. There has been modest more growth of store brands in the Tableware segment.

And I guess in that vein, just what you've seen from a competitive standpoint for Hefty. I know, again right now with a lot of stock up behavior, kind of all bets are off but let's say prior to the last couple of weeks, just there's been a bit of Hefty pricing moving in one direction, your other, your leading brand to competitors sort of moving in the other, converging in the middle. So what's the current state of play from a promotional standpoint in the trash category would you say?

Well, in our Waste & Storage segment, we've not made any changes to our pricing strategy. Our promotional strategy is also unchanged and aligned with historical levels. We have seen some tightening of everyday price points as retailers compete across scales but those are retailer margin decisions and not a result of any changes in our pricing or promotional strategies. We believe that the Hefty value strategy is very effective and we're planning to continue to provide high quality innovative new products, and continue to offer consumer substantial value as we have been doing for the last several years.

Thank you. And our next question comes from Andrea Teixeira with JP Morgan. Your line is open.

So I was hoping if you can elaborate on the comments from the prepared remarks about the low single digit sales growth assumptions, I'm assuming that is a long term [indiscernible] done. So if talking about 2020, what is your assumption of category growth bearing in mind what you discussed about the price declines because of commodities? And what are you assuming in terms of share, are you assuming any share gains for brand and related to your total portfolio, or just stable at this point? And another part of the question would be if you're seeing this demand, which goes back to a question earlier of the competitive environment, or are competitors increasing promotions? I mean, I'm assuming the price points are similar right now. But do you ever foresee them trying to defend value share because the resins are down, particularly for trash bags?

Well, we have seen our category is growing at 2% to 3% over the last several years and we believe that low single digit volume growth is achievable. In 2019, all of our major categories grew and we increased the combined branded and private label share in waste bags, food bags, foil and [party], just to name a few. So we have a very clear line of sight for the volume growth in our 2020 outlook, and we believe that low single digit growth is sustainable in the long term as well. We are not planning on providing guidance on revenue going forward and it's not specific to this environment it’s because we focus on year-over-year earnings growth. And in fact as I've mentioned, all of our salaried employers’ compensation is tied to year-over-year earnings growth and cash flow. So commodity costs do go up and they are down and that can impact revenue. But our focal point is ensuring that the earnings growth comes and we have the volume to ensure that that occurs. As far as overall dynamics in the waste bag category, I think I just commented on that. Perhaps you have a follow-up questions more specific.

I appreciate that. Just in terms of promotions, I understand that perhaps there isn’t lot of, the promotions you're seeing are being funded by the retailers. But are you seeing, or you're foreseeing anything because resin prices coming down but eventually you're going to see more promotions coming up when you talk to the trade from a manufacturing standpoint or you’re not embedding that in your guide?

Well, we haven't seen resin prices come down yet. The recent oil price changes may translate into resin price changes but they have not yet occurred. And although oil prices has some correlation to resin, they’re not a direct correlation. Resin is supply and demand driven commodity as much as it is an input cost. And in fact the inputs for resin in the United States are from natural gas, not oil. So we will have to adjust as we have historically managed our pricing strategy according to commodity costs. We've done that very successfully over the long term. And if we do see changes in commodity costs, we will adjust accordingly.

Thank you. Our next question comes from Bill Chappell with SunTrust. Your line is open.

Just following up on kind of what you're seeing from coronavirus, and I assume at this point even though it's early days, you're not baking any kind of purchases, stockpiling anything like that at this point to your near-term outlook?

It's been in the last two weeks we've seen some modest increase in retailer purchases and consumer takeaway, but it has not been significant and certainly not on the scale of the things that we've been reading about in other products like hand sanitizer and toilet paper. It's been a modest type of takeaway the increase.

And then back to the other question on, be it trash bags or just in general. Have you seen any changes in the competitive landscape and just how I guess your competitors are treating you now but you're a public company and numbers that we get to look at on a quarterly basis? And do you expect any changes just on from a pricing standpoint over the next few months?

Well, the competitive pricing environment in that category has been rational, the current pricing architecture has been returned now, including promotional to historic price points.

But in general, you're not seeing any real changes across categories?

No, there was a change that occurred couple of months ago and now the current pricing architecture is back towards it’s been historically.

Thank you. And our next question comes from Mark Astrachan with Stifel. Your line is open.

So I guess I had two questions for you. One on the key price threshold, you talked a bit about that, earlier you talked a bit about that historically in terms of kind of the price volume dynamic. So are there any key price thresholds that you're above at this point that you think given some of the potential benefit commodity costs you could potentially, or are looking to cross or are retailers looking to cross and just sort of thinking about where you're coming from meaning the price increases given raw materials and input costs over the last year or so, and this an opportunity perhaps to reduce those if at all? And then try come with the stockpiling in slightly different way. So if some of what's going on out there from your factoring standpoint results in people eating at home more. Does that potentially increase the actual consumption of your goods, imagine it does. So maybe any sort of parallels you can give historically, obviously, not relating exactly to what we're going through now but just in terms of periods where people have eaten at home more, or whether its recessions or whatnot, and any sort of learnings you can provide for us, I think that would be helpful. Thank you.

Mark, first on your question on price thresholds. We did correct the price thresholds last year, the primary one as we've talked about previously was in Reynolds Wrap, where we crossed a price point across our flagship products and corrected that throughout the course of 2019. We also had some price points that we crossed in Tableware that we've also since corrected. So there are no current price points out there that need to be corrected in any of the channels. Regarding use occasions as consumers potentially stay at home more, absolutely that would have a positive impact on our consumption, we're driven by at home use occasions and convenience and that would be across all of our product categories, from aluminum foil for cooking, food -- and storage freezing, the food bags for storage, more use of waste bags as consumers are staying at home more and across all of our disposable tableware products. So yes, we would expect to see some consumption trends move positive as consumers stay at home more often.

And just to be clear, that's not embedded or it is embedded in the guidance you provided?

No, it's not embedded in the guidance, because we haven't seen that significance trend yet, that would be an upward movement opportunity in a tailwind, so what we projected in our guidance.

Thank you. Our next question comes from Robert Ottenstein with Evercore. Your line is open.

Two questions, one looking at the guidance range given that it doesn't include, at this point, my understanding is anything from resin, changes in resin prices or the coronavirus? Can you just kind of maybe outline a little bit some of the factors as you thought about the range that would lead to the low end of the range or to the high end of the range? So that's the first question. And then the second question, are you seeing any kind of pick up at all, signs of pick up in e-commerce and are you prepared for that? Thank you very much.

As it relates to the range and hit the top end of our range, we’ll need to see a combination of the following. Revolution, we've seen strong performance in revolution in the past, in order to hit the higher range, we’ll need to see cost savings that are in the range of $60 million to $78 million or above. Other things that can influence that is further decline in commodity rates, or that can benefit us in a way that would benefit to better end of the range and then obviously, the execution of our growth initiatives that have been outlined in revolution strategy to drive top line growth and through successful launches of new products. All those could be variables that could go our way and could influence the overall higher end of the range. The inverse of that would be these going the opposite directions and that would take us towards the lower end of the range.

And Robert, to your question about e-commerce, we continue to see strong year-over-year growth in that channel. But if you're asking if it's recent and driven by coronavirus, we had not seen any substantive change. But again, it's fairly early days that is a channel that we are well positioned in for growth. And should that channel shift occur, we're well positioned to be able to participate in that.

Do you need any incremental investment if all of a suddenly the demand really increased in terms of e-commerce?

No, we don't use third-party sales, everything's direct and we're well set up from a logistics standpoint to service Amazon's locations and our other than Walmart.com and the othere-channel participants across all of the warehousing.

Thank you. And our next question comes from Nik Modi with RBC. Your line is open.

So just a couple of questions. Lance, can you just talk about the timeframe in which you have to make decisions with your retailers regarding pricing? Just given the volatility that we're seeing in the commodities markets, just wanted to get an understanding of the actual process. And then the second question is just on trade spend. How nimble can you be? I mean, if people are stockpiling, my sense is that probably if it makes sense to promote. How nimble can you be in terms of scaling back your trade spending, kind of reacting to situations like we're seeing right now?

The first question again was related to -- could you repeat that for me, the first question was…

Yes, just the [Multiple Speakers] process with the retails, because I know it gets more complicated given your dual strategy.

So typically, we have 60 day notification period with most of our retailers regarding pricing. It can be on a case-by-case basis a little shorter than that, but that is the typical timeframe from a time that we initiate pricing to when it gets implemented and if the retailer will accept the change. The second question [Multiple Speakers] typically, we locked in the trade spend and promotions at a six month increment. So our trade program was pretty locked in for the first six months looking out, and it's not as nimble as beyond that. So we're pretty set in our trade.

And then just one more quick one on innovation I mean, you know during times like this when everyone is kind of in a state of flux. Do you see retailers kind of behaving more conservatively on how much inventory they take of new product concepts or is it really not a change?

Really have not seen a significant change in that regard, and retailers are always welcoming the opportunity to introduce new products that would increase their sales and improve their retail. And I'm proud to say that for 2019, we once again achieved more than 20% of our revenue from products that were less than three years old. And we have a clear line of sight for 2020 to continue that trend.

Thank you [Operator Instructions]. Our next question comes from Kaumil Gajrawala with Credit Suisse. Your line is open.

A couple of questions, one, if you could maybe just educate us given that you have private label and branded. If a recession were to occur, how would it impact your business? You know, perhaps if there is a trade down then there might be a margin, something on margins we need to look at it. Or it could be that if looking at last recessions there isn't that much of that, because private label consumer doesn't trade up or down and the branded doesn’t trade up or down either. So you could maybe just walk us through recession impact. And then a second thing, it's a little hard for us to give us some of the puts and takes on the year-over-year comp it’s hard to get a read on market share. So if you could maybe give us some highlights on how your market share trended in the quarter that’d be useful?

So first of all on the market share, over the last 52 weeks we've seen some share gains in Hefty slider bags, Reynolds Wrap, Hefty waste bags and Hefty cups and significant majority of the rest of our products we maintained our strong share positions and the same trends is how the last 12 weeks as well. Regarding recessionary commentary, we're fortunate of this company that’s been -- was reformed about 10 years ago, we've not lived through a recession. But from a historical basis, we do know that these categories have been stable from a brand and store brand standpoint. So while it's difficult to predict the future and we don't have a solid history to be able to go back and reference, we do believe because these categories are already well penetrated across brand and store brands from a percentage standpoint that they would remain stable as we go forward.

And then just a quick one, I think you mentioned run rate CapEx at $80 million, you're obviously higher than that temporarily. It sounds like some of those investments end this year. That means then you're intended to go back to $80 million. Is that correct…

Yes, so if you look at our overall history of CapEx, it's really average costs of around $70 million annually. And this is kind of a good guide for normalized CapEx spend. But as I mentioned earlier, we’re in the higher investment phase of capital right now. So we expect that the trend toward that $70 million will happen after we exit 2020.

So you’ll trend back to $70 million as opposed to [Multiple Speakers]…

We’ll trend back $70 million after 2020.

Thank you. And we have a follow up from Andrea Teixeira with JP Morgan. Andrea, your line is open. Okay. I'm showing no further questions at this time. I'd like to turn the call back to management for any closing remarks.

Well, thank you, everyone. I appreciate your time. And we look forward to the next earnings call, which will be soon, because we're pretty late in this one, because of time in the IPO. So we look forward to the next earnings call and your participation.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.