Greetings, and welcome to the Reynolds Consumer Products Inc. First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Swartzberg, Vice President of Investor Relations. Thank you, sir. You may now begin.

Thank you, operator. Good morning, and thank you for joining us on Reynolds Consumer Products' First Quarter 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 presentation slides are also available. With me on the call today are Lance Mitchell, our President and Chief Executive Officer; and Scott Huckins, our Chief Financial Officer. For our call, Lance will review our business performance and the actions we are taking to continue leading our categories followed by Scott, who will review our first quarter results and our outlook. Following prepared remarks, we will open the call for your questions. Before we begin, I would like to provide a couple of 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 the 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 website. Now I'd like to turn the call over to Lance.

Thank you, Mark, and good morning, everyone. We're off to a strong start in 2024. We continued to lead our categories delivering retail volume at the high end of our guide, which reflects the strength of our integrated brand and store brand business model. We continue to launch a robust line of innovative products and our focus remains steadfast on offering sustainable alternatives across our product categories. We're delivering results from our Reyvolution program and continue to develop further opportunities. And we outperformed our first quarter guide delivering strong earnings growth. We have a high level of confidence in our plans and actions that we're taking to lead our categories, drive earnings growth and continue to increase our financial flexibility. Before I get into the specifics of each business, I'd like to first comment on the consumer environment. When we reported results in February, I spoke to volume as being under pressure across the consumer staples sector. During the quarter, demand was modestly better than expected in some of our categories and share gains also contributed to our retail performance, reflecting the strength of our integrated business model. However, factors, including reduced consumer savings, increasing credit card debt, continued inflationary pressure and elevated interest rates, continue to pressure consumption in our categories. In this context, we're not complacent. We ended the year expecting ongoing consumer pressure and we're taking actions that we planned to drive our categories, our profitability and additional financial flexibility. Our actions are wide-ranging and include the following: as category advisors, we are in ongoing dialogue with our retail partners and constantly evaluating and adjusting our joint plans to meet their needs and the needs of our consumers. We're investing in compelling and impactful omnichannel and multiproduct advertising and we're actively managing proven price, pack and architecture…

Thank you, Lance. Good morning, everyone. 2024 is off to a strong start as our first quarter performance closely aligned with the objectives we outlined when introducing our full year 2024 guide in February. As a reminder, those objectives are: driving retail volume at or above category performance, delivering double-digit earnings growth, investing in our categories and product innovation, driving productivity, disciplined cost management and additional Reyvolution cost savings and generating strong free cash flow and reducing leverage. In totality, we delivered the first quarter we expected and are on track to deliver our guide for 2024. During the first quarter, we generated revenues, adjusted EBITDA and earnings that surpassed the high end of our guide and continue to increase financial flexibility. First quarter retail revenues were $794 million, at the top end of our expectations and $23 million below retail revenues in the year ago period. After giving effect to 150 basis points of product portfolio optimization, our retail revenues outperformed our categories by approximately 50 basis points. Low-margin, non-retail revenues declined to $39 million in the quarter but outperformed our expectations. Adjusted EBITDA increased $40 million to $122 million, reflecting high teens or more earnings growth in 3 of our 4 businesses, driven by manufacturing output and lower operational costs. Earnings per share were $0.23, up significantly from $0.08 per share in the first quarter of 2023, reflecting EBITDA growth and lower interest expense from a significant reduction in debt in 2023. Operating cash flow of $99 million was a record for the first quarter, driving a reduction of net debt to 2.5x trailing 12-month adjusted EBITDA and enabled an additional $50 million voluntary principal payment on our term loan facility subsequent to quarter end. Turning to our 2024 guide. Our financial objectives remain simple and clear: protect…

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

Great and good start to the year. Two questions. You mentioned a weakening consumer environment and some pressures on the business potentially because of that. Can you talk about that point within the context of also the possibility, and I think we see it in a number of areas, of people going away from restaurants, which have gotten incredibly expensive to at-home meals. And so that's an opportunity and kind of maybe how you can use that trend to offset the weaker consumer? So that's question number one. And then question number two, when we met last, a lot of excitement on some of your new innovations, can you maybe talk about kind of the initial view of the incrementality of those innovations and whether you're getting incremental shelf space at Target and Walmart, and when does that hit? Is that in the market now? Or is that more of kind of a June-July event?

Robert. Well, the macroeconomic environment, inflation remains a concern on a number of factors that I have outlined in the prepared remarks. The consumer continues to be price sensitive in this environment, and we're continuing to look for ways to provide them with value. You're absolutely right that with restaurant foot traffic going back to in-home use, so that's a potential upside to a lot of our categories, particularly Reynolds Cooking & Baking. So we have factored that in, but it could be some potential upside as we go forward. Of course, we'll stay very close to watching that. Regarding our innovations, we're very pleased with the distribution gains that we've achieved in a number of retailers, including the 2 that you noted. Those mods have dropped already. They are in store. And we've got a number of our new innovations on the shelf. We'll see how those perform. And of course, we'll be reporting on that in the quarters ahead.

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

Maybe just one follow-up to Robert's question. I just want to make sure I heard that right. Did you say that you are including some sort of assumption in terms of the shift in food away from home to food at home and your kind of your projections for this year. That's my first question. And then I just wanted to ask about the commodity outlook. I know the guidance embeds an assumption for more stable rates, but we've started to see an increase in spot rates across certain buckets. So maybe can you just help us understand what you're seeing across your commodity basket and kind of should inflation begin to move higher here? Can you talk about plan of action, particularly to the point of the consumer appears to be more under more pressure.

Peter, I'll take the first part of that. We have factored modestly in our guide, some restaurant moving back to in-home use. So that's particularly -- Reynolds Cooking & Baking is modestly uptick in that consumption. And I'll turn the commodity question over to Scott.

Thanks for the question. So we certainly have seen a modest uptick in a few of the commodity inputs at least relative to the end of 2023. However, when we built the original guide and our current outlook, we did factor in a modest amount of increase in those costs and feel very comfortable that, that's reflected in our outlook.

Our next question comes from the line of Mark Astrachan from Stifel.

On market share and category expectations, I wanted to make sure I understand this. So I think you said you outperformed your categories by 50 bps in the quarter. Your volumes were down 3% ex non-retail. So category is down 3.5%, something like that. But I think expectations for the year are still for category to be down 2% in total. So could you just reconcile that? I guess that just means you think it's going to get better through the year. Is that correct?

I'll start with that. I'll have Scott add on to it. That is correct, 2%, and I reinforce the fact that we aren't expecting an increase in category performance in the second half.

So I think the reconcilement question you're asking is retail revenues in the quarter were down 3%. Of that 3%, there was about 150 basis point effect from product portfolio optimization for, call it, a net result of 1.5 points of decline in a category down to that was the math behind the 50 basis point capture comment.

Got it. Okay. So that makes sense. And the category effectively is the same through the year and you're just taking away the optimization piece. Okay. And maybe if you could drill down a little bit in the market share progression by category, just sort of report card in the early part of the year, particularly given that the consumer seems to be a bit volatile sector to sector. That would be helpful. And then just sort of related to that, any updates on private label. I know you talked a little bit about how you're thinking about that through the year, but any sort of move there, again, sort of related to the category-by-category question would be helpful, too.

I'll start with the last question. We can talk a little bit more about the specific categories in the share. Private label is, for the most part, been stable. We haven't seen a significant shift in the private label in our categories. We have seen some movement in some of the categories, but it was also factored into our guide. As far as the share gains go, I think we outlined that in the prepared remarks is particularly in the cookie and baking business. We had some share gains, continued share gains in foil. We continue to gain share in private label food bags. We've held share in the other categories.

[Operator Instructions] Our next question comes from the line of Andrea Teixeira from JPMorgan.

Lance, I wanted to go back to your comments about the U.S. consumer, but more in the perspective of the price pack architecture that you reviewed, I think, with more details at the Analyst Day. And just now you mentioned foil gaining share. But what has been the dynamic in trash bags, I think you brought in a lot more kind of accented, that you're getting a lot more market share with Fabuloso. I was hoping to see if you can comment a little bit on the price pack architecture, perhaps diminishing account and seeing how you can be positioned for that consumer that might be -- that don't want to get out of your branded and go to your private label, but perhaps stay in the brand. And then a clarification on Scott's commentary on the shelf registration. Is that just for to potentially optimize your cost of debt? Or is there any use of capital that you wanted to be prepared for in case you want to make acquisition? Or is there anything related to your CapEx plans?

I'll certainly let Scott answer that second question. The first question on the price pack architecture is that is primarily focused on the tableware business. As we talked about at Investor Day, and I've talked about even in previous earnings calls, that category overall has really been impacted by inflationary pressures, and we're responding to that with a number of actions, some of which I outlined in our prepared remarks. But one of those is price pack architecture, make sure we get the accounts right, we get the price points correct. And we are seeing improvement in that category and our performance in the category. Again, we're both brand and store brand in that category and very pleased with the performance that we're seeing on both from a sequential standpoint, but we're not done yet. We've got more work to do to ensure that we continue to grow that category and ensure our position grows within it as well. The other categories from a price pack architecture standpoint, we've got already corrected. We're in good position across our other categories in that regard and the price points and the gaps with brand and private label, we're very pleased with. I'll turn it over to Scott for the question on the shelf.

So I think my 3 points to make on the shelf, the first is just a reminder, that our near-term priority remains to pay down debt. I think that's important context for the question. And as we've mentioned in the prepared remarks, the shelf itself is the normal administrative vehicle to facilitate potential debt and equity offerings. And I think the last point is, I think we mentioned in the prepared remarks, we do not have current plans.

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

Just 2 follow-ups. One, I think I know the answer to this, but are your service levels now kind of back to pre-COVID levels? Or is there still work to be done on that score? And then second, can you talk a little bit about competitive activity? Is it rational? Are there any things in any particular categories that are worrisome?

Rob. First of all, on the question of our service levels, I see a report every day at our service levels by overall and, of course, by product line. And we are back to the 98.5%, that is our 98.5% case fill that we hold ourselves accountable to for our retail partners. So yes, to answer your question on service, we are back. On the second question, yes, competitive activity is rational. We are seeing more promotions. We had planned for that, and we are increasing our promotions as well and ensuring we -- as I mentioned a moment ago, again, our price point is correct. But what we'd expected from a competitive environment standpoint is playing out to this point to be what we'd expected.

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

This is Madison Callinan on for Brian. It sounds like you're perhaps a little bit more cautious on the consumer relative to Q4. So what gives you the confidence to reiterate most of your guidance? And what would you expect the major delta to be if results deviate materially, either positive or negative from your current forecast?

Yes. It's Scott. I'll take it. So the takeaway on the state of the consumer, I think, is largely unchanged. We pointed to those same dynamics about drivers of consumer behavior on the fourth quarter call in February as we did here on this call. I think your second part of your question is what might cause out performance, what might cause underperformance, I'd say, if we were to see, for instance, further escalation of inflation that had the trickle-down effect of the consumer reducing demand, that would be "the downside case". Similarly, if the marketplace was unchanged and we actually had more success taking share for the balance of the year, that would be the case for outperformance. But again, the state of the consumer, the point of view is unchanged.

Great. And secondly, we're just curious what innovation launches are outperforming or underperforming your internal expectations? And is that relative performance continuing contemplated in your updated guidance?

It is contemplated in the guide, but I think it's too early for us to declare victory on some of the innovations we've introduced. As I mentioned in a previous question, as we go throughout the year, we'll provide details on how innovation is performing, the ones that we've recently launched.

Our next question comes from the line of Andrea Teixeira from JPMorgan.

I was just hoping if you can comment a little bit more on the distribution gains. You mentioned in the prepared remarks about Hefty Fabuloso and also several of the tableware gains. I'm assuming with your guide, you obviously have the adjustment for the contract manufacturing and the price concession there. But anything you can say about like how we should be thinking into the fall and also for the Cooking & Baking. And I appreciate when you -- when Scott, you called out that you had a record fourth quarter that we shouldn't be assuming that's going to be the same. So it's a different seasonality there. But just curious if you're planning to see some distribution gains into that category as well or it's mostly on trash -- and on the trash bags and on the tableware.

Andrea, the distribution gains are in several of our categories. I won't go into the details of those, but we are pleased with the modulars that have been set at our retail partners as we go in and how those perform are yet to be determined, but the distribution gains are factored into our guide.

I think you also got at kind of the phasing or pacing of performance, and that was the intent of the prepared remarks, that last year, if you just looked at the quarterly results, we had a low teens contribution of EBITDA at the full year in the first quarter, a high 30% contribution to EBITDA in the fourth quarter. In round numbers, those are about 5 points off. You would normally see a high teens, just like we did relative to the first quarter to our full year guide contribution, and the fourth quarter would look like -- or more like low 30%.

[Operator Instructions] Our next question comes from the line of Jim Abbott from Barclays.

Just a quick question on pricing. So it was flat in the first quarter and guided to flat in the second. But then the outlook for the full year calls right down one, so implying some pressure in the back half despite easier comps in the year-ago period. So any dynamics to be aware of on that or segments to call out with pricing pressure?

Yes. So no pricing pressure per se. You're right, just to kind of reset, no change in price in Q1, no expected change in price in Q2. Full year down one remains. It's more a function of pricing activity from last year than pricing pressure this year. That's probably the easiest way to think about it.

There are no further questions at this time. I would like to turn the call back to Mr. Lance Mitchell. Please go ahead.

Well, thank you, operator, and thank you, everyone, for your time today on behalf of everyone at Reynolds Consumer Products, we appreciate your interest in our business. Stay safe. Take care. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.