Household products company Reynolds (NASDAQ:REYN) reported Q1 CY2024 results topping analysts' expectations, with revenue down 4.7% year on year to $833 million. The company expects next quarter's revenue to be around $887.5 million, in line with analysts' estimates. It made a non-GAAP profit of $0.23 per share, improving from its profit of $0.08 per share in the same quarter last year.
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Reynolds (REYN) Q1 CY2024 Highlights:
- Revenue: $833 million vs analyst estimates of $815 million (2.2% beat)
- Adjusted EBITDA: $122 million vs analyst estimates of $118 million (3.1% beat)
- EPS (non-GAAP): $0.23 vs analyst expectations of $0.22 (in line)
- Revenue Guidance for Q2 CY2024 is $887.5 million at the midpoint, roughly in line with what analysts were expecting
- EPS (non-GAAP) Guidance for Q2 CY2024 is $0.44 at the midpoint, above analyst estimates of $0.37
- Gross Margin (GAAP): 24.1%, up from 17.7% in the same quarter last year
- Free Cash Flow of $70 million, down 63.9% from the previous quarter
- Organic Revenue was down 5% year on year
- Sales Volumes were down 3% year on year
- Market Capitalization: $5.97 billion
Household ProductsHousehold products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don't invest enough to meet consumers where they want to be with regards to trends.
Sales GrowthReynolds is larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.
As you can see below, the company's annualized revenue growth rate of 4.1% over the last three years was weak as consumers bought less of its products. We'll explore what this means in the "Volume Growth" section.
This quarter, Reynolds's revenue fell 4.7% year on year to $833 million but beat Wall Street's estimates by 2.2%. The company is guiding for a 5.6% year-on-year revenue decline next quarter to $887.5 million, a reversal from the 2.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to decline 2.7% over the next 12 months.
Volume GrowthRevenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Reynolds generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Reynolds's average quarterly sales volumes have shrunk by 4.5%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, Reynolds was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 1.1% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.
In Reynolds's Q1 2024, sales volumes dropped 3% year on year. This result was a further deceleration from the 2% year-on-year decline it posted 12 months ago, showing the business is struggling to push its products.
Key Takeaways from Reynolds's Q1 Results We were impressed by Reynolds's optimistic earnings forecast for next quarter, which exceeded analysts' expectations. We were also excited its organic revenue growth and adjusted EBITDA both outperformed Wall Street's estimates. On the other hand, its full-year revenue guidance was underwhelming. Overall, we think this was a solid quarter. The stock is up 1.2% after reporting and currently trades at $28.77 per share.