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PE

Pactiv Evergreen Inc. (PTVE)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered net revenues of $1.252B, Adjusted EBITDA of $168M at the high end of guidance, Adjusted EPS of $0.14, and diluted EPS of $0.04; Adjusted EBITDA margin was 13.4% vs 13.2% a year ago .
  • Revenue declined 13% year over year and 2% sequentially; volumes fell ~3% amid inflation-driven demand softness and value-over-volume decisions, while Foodservice margins compressed sequentially on seasonality and manufacturing costs .
  • Management reiterated FY2024 Adjusted EBITDA guidance of $850–$870M and FY free cash flow guidance; expects H2 Adjusted EBITDA to be more than 30% above H1, with ~$20M headwind in Q2 from the Pine Bluff mill outage .
  • Liquidity enhanced: revolver capacity increased from $250M to $1.1B (maturity extended to May 1, 2029), reinforcing balance sheet flexibility; focus remains on deleveraging to high-3x net leverage by year-end .

What Went Well and What Went Wrong

What Went Well

  • Achieved Adjusted EBITDA of $168M at the high end of Q1 guidance; margin ticked up YoY to 13.4% despite macro headwinds .
  • Reiterated full-year outlook and outlined >30% H2 EBITDA uplift driven by Pine Bluff normalization, volume ramp from customer wins, and cost savings; “we are reiterating our full year outlook” .
  • Execution momentum on cost programs and PEPS (Pactiv Evergreen Production System), with early certifications and a path to longer-term margin gains and operational stability, aiding inflation mitigation .

What Went Wrong

  • Net revenues decreased 13% YoY (to $1.252B) and volumes declined ~3%, reflecting inflation-pressured consumer demand and value-over-volume choices, particularly in Food & Beverage Merchandising .
  • Sequential EBITDA fell 19% vs Q4 on seasonal Foodservice volume and higher manufacturing/material costs; Foodservice segment EBITDA declined 20% QoQ .
  • Free cash flow was negative $74M in Q1 due to typical seasonal inventory build and lower profitability vs last year; leverage ticked up as expected on lower LTM EBITDA and net debt increase .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Net Revenues ($USD Millions)$1,379 $1,274 $1,252
Diluted EPS ($)$0.15 $0.12 $0.04
Adjusted EPS ($)$0.32 $0.33 $0.14
Adjusted EBITDA ($USD Millions)$227 $207 $168
Adjusted EBITDA Margin (%)16.5% 16.2% 13.4%

Segment performance

Foodservice

MetricQ3 2023Q4 2023Q1 2024
Net Revenues ($USD Millions)$675 $626 $597
Segment Adjusted EBITDA ($USD Millions)$117 $112 $90
Segment Adjusted EBITDA Margin (%)17% 18% 15%

Food & Beverage Merchandising

MetricQ3 2023Q4 2023Q1 2024
Net Revenues ($USD Millions)$712 $653 $660
Segment Adjusted EBITDA ($USD Millions)$130 $113 $100
Segment Adjusted EBITDA Margin (%)18% 17% 15%

KPIs and balance sheet

KPIQ3 2023Q4 2023Q1 2024
Cash from Operations ($USD Millions)$238 $81 $(33)
Capital Expenditures ($USD Millions)$(62) $(107) $(41)
Free Cash Flow ($USD Millions)$176 $(26) $(74)
Total Debt ($USD Millions)$3,611 $3,586 $3,585
Cash & Equivalents ($USD Millions)$233 $164 $71
Net Debt ($USD Millions)$3,378 $3,422 $3,514

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2024$850–$870 $850–$870 Maintained
Adjusted EBITDA ($USD Millions)Q1 2024$160–$170 Actual $168 Delivered at high end
Free Cash FlowFY 2024Reiterated ≥$200M+ framework Reiterated (unchanged) Maintained
Capital Expenditures ($USD Millions)FY 2024~$300; ~$250 ex-FO/Pine Bluff Unchanged (framework) Maintained
Net LeverageYE 2024High 3x target High 3x target Maintained
Q2 EBITDA headwindQ2 2024N/A~$20M Pine Bluff planned outage New detail
H2 vs H1 EBITDAFY 2024N/A>30% H2 improvement vs H1; ~50% from Pine Bluff; remainder volume, cost, mix New detail
Beverage Merchandising Restructuring (cash/non-cash)2024Cash $150–$160; Non-cash $325–$330 Cash ~$160; Non-cash ~$330; substantially recorded Narrowed/confirmed
Footprint Optimization (charges/capex)2024–2025Cash $50–$65; Non-cash $20–$40; Capex $40–$45 Same ranges; $8M cash and $2M non-cash incurred in Q1 Maintained/update incurred
Revolving Credit FacilityAs of May 1, 2024$250M capacity [historical]Increased to $1.1B; matures May 1, 2029 Increased

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2023)Previous Mentions (Q-1: Q4 2023)Current Period (Q1 2024)Trend
Consumer inflation/foot trafficElevated inflation; foot traffic down slightly; aligning with strategic customers Foodservice volumes resilient; severe Jan weather impacted Q1 setup Foot traffic down ~4%; volumes down ~1.5% in Foodservice; cautious consumer persists Pressure persisted into Q1; expect modest H2 recovery
Value-over-volume strategyEmphasized; drove margin expansion; outperformed end-markets Foodservice more advanced; F&B Merchandising still executing Continued portfolio optimization; underpins volume/mix choices Ongoing execution; mix headwind near-term
Cost initiatives/PEPSPEPS rollout; certification progress; margin benefits building PEPS offsets inflation; footprint optimization announced Early PEPS certifications; stability and future savings; detailed footprint charge ranges Building; savings to accelerate late-2024/2025
Resin/material pass-throughsLower raw materials; pass-through lags reduced COLA recoveries lag Q1; normalize through year Resin pass-throughs insulate margins; minimal P&L impact expected Insulated; volatility manageable
Pine Bluff millCold mill outage impact in prior quarter Strategic alternatives ongoing; capex allocation Planned outage in April; ~$20M Q2 EBITDA impact; ~50% of H2 uplift from Pine Bluff Near-term headwind; significant H2 tailwind
Liquidity/leverageDebt reduced; net leverage 4.2x Debt reduced $550M; target high-3x in 2024 Revolver increased to $1.1B; deleveraging to high-3x reiterated Liquidity strengthened; deleveraging trajectory intact
Promotions/customer winsLimited promotions; potential positive Expect H2 volume inflection on promotions New agreements across QSR/distributors/CPG; H2 ramp Increasing promotional backdrop/H2 wins

Management Commentary

  • “Adjusted EBITDA for Q1 of 2024 was $168 million, which was at the high end of our guidance… [and] volumes decreased 3%… primarily due to a focus on value over volume” .
  • “We are reiterating our full year outlook… expect an improvement in volumes during the second half… pipeline of customer wins… ramp as we progress through the rest of the year” .
  • “We expect sequential improvements into the second half of the year, providing an additional layer of earnings momentum in 2024” .
  • “The recent uptick in inflation… if [it] persists beyond the second quarter, we would expect our full year guidance to come in at the lower end of our guidance range” .

Q&A Highlights

  • H2 cadence: management guides >30% H2 EBITDA improvement vs H1; ~50% from Pine Bluff normalization; remainder from volume, cost savings, and favorable mix .
  • Q2 bridge: implied Q2 EBITDA around ~$206M before >30% H2 uplift; ~$20M Q2 impact from April Pine Bluff turnaround .
  • Customer wins/substrates: wins across Foodservice and Food & Beverage; no major substrate shift (mixed fiber/poly) .
  • Foodservice dynamics: foot traffic down ~4%; PTVE unit volumes down ~1.5% and outpaced end-markets; expecting low single-digit recovery in back half with promotions, healthier inventories .
  • Resin and freight: pass-throughs expected to insulate margins from resin/freight volatility; internal transfer freight initiatives offset increases .
  • Deleveraging and liquidity: committed to ending year in high-3x leverage; revolver capacity increased to $1.1B to enhance liquidity .
  • Working capital: Q1 headwind expected to reverse; working capital a source of cash through year, supporting $200M+ FCF guidance .
  • PEPS: 22 sites certified (18 bronze, 3 silver, 1 gold); early days but driving stability, cost avoidance, and future savings .

Estimates Context

  • S&P Global consensus estimates for PTVE’s Q1 2024 EPS and revenue were unavailable due to a Capital IQ mapping limitation (tool error). As a result, formal beat/miss vs Wall Street consensus cannot be presented for this quarter.

Key Takeaways for Investors

  • Q1 landed at the high end of EBITDA guidance despite macro softness; margin held at 13.4% YoY, signaling resilient cost control and execution .
  • Near-term headwind in Q2 (~$20M Pine Bluff outage) should give way to a material H2 step-up (>30% vs H1), with half of the uplift from Pine Bluff and balance from volume wins and cost savings—an explicit catalyst path .
  • Liquidity significantly strengthened with revolver upsized to $1.1B; management reiterated deleveraging to high-3x by YE, supporting equity/credit narratives .
  • Demand backdrop remains mixed: Foodservice pressured by foot traffic declines; F&B Merchandising benefits from staples (protein/eggs) with value-over-volume strategy stabilizing margins .
  • Pricing/margin risk from resin looks contained due to pass-throughs and reduced lag—limiting commodity volatility’s impact on P&L .
  • Ongoing footprint optimization and PEPS rollout should bolster fixed-cost reduction and operational stability; benefits build into late-2024 and 2025 .
  • Tactical positioning: watch Q2 print for outage impact and H2 trajectory confirmation; promotion-led volume recovery and customer wins ramping in H2 are key stock drivers .