A cleanup reserve divides Reynolds’ profit forecasts

Reynolds Consumer Products recorded a $25 million environmental-cleanup reserve and reduced its annual reported-profit forecast. Its adjusted earnings-per-share target remains unchanged, excluding the reserve and other specified costs.

The reserve concerns historical contamination at one manufacturing facility. The quarterly report does not name the site. Its remediation plan is still being developed and reviewed, and the company cannot estimate possible costs above the reserve.

Two versions of the annual outlook

Reynolds now expects net income of $307 million to $320 million, compared with $331 million to $343 million in July. Adjusted earnings per share remain $1.57 to $1.63. Its adjusted EBITDA target, a profit measure that removes interest, taxes, depreciation, amortization and specified costs, also stays at $660 million to $675 million.

Third-quarter net income was $58 million, down from $79 million a year earlier. Adding back the environmental charge's $19 million after-tax effect and $6 million of other adjustments gives adjusted net income of $83 million, compared with $88 million.

That adjusted result reached the upper end of the company's original quarterly forecast. The reported-profit decline therefore includes a new excluded charge, while the underlying comparison is also somewhat weaker.

Pricing offsets costs as retail volume falls

Reported revenue rose to $944 million from $931 million. The company's revenue-growth bridge shows a 9-percentage-point contribution from pricing, offset by 7 points from retail volume and mix and 1 point from nonretail volume and mix.

Retail volume had also fallen in the previous quarter. Management identified product and promotion effects as well as cost pressures; the figures alone do not assign the decline entirely to higher prices.

Cash and a completed purchase

Nine-month operating cash flow was $224 million, compared with $240 million a year earlier. Capital spending rose to $143 million from $124 million.

After quarter-end, Reynolds completed a $110 million cash purchase of Owl’s Head Alloys (OHA), funded through its revolving facility. That purchase comes after the September balance sheet, which showed $25 million of cash and cash equivalents and $1.531 billion of debt at carrying value.

The Reynolds Consumer Products Inc. company profile follows the earnings, cash and financial position behind the announcement.