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PE

Pactiv Evergreen Inc. (PTVE)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 results were below internal expectations amid end‑market weakness and temporary operational disruptions at the Pine Bluff mill; net revenues were $1.338B, Adjusted EBITDA $183M, and diluted EPS $0.10 . Management cited heightened price sensitivity among customers and a lower‑than‑expected sequential volume uplift as key drivers .
  • The company announced a definitive agreement to sell the Pine Bluff mill and Waynesville extrusion facility to Suzano; closing is expected in Q4 2024, with an anticipated Q3 non‑cash impairment charge of ~$320–$340M upon held‑for‑sale classification .
  • Full‑year 2024 guidance was lowered: Adjusted EBITDA to $800–$820M (from $850–$870M), capex to ~$260M (from ~$300M), and free cash flow to $180–$200M (from $200M+) as management responds to slower end‑market recovery; ~$15M overhead cost actions are planned in H2 .
  • Balance sheet actions include repricing/upsizing term loans to $1.3B and drawing $350M on the revolver to prepay 2026 term loans, reducing annualized interest by ~$14M and enhancing liquidity; net leverage is targeted at ~4x by year‑end .

What Went Well and What Went Wrong

  • What Went Well
    • Strategic portfolio repositioning advanced: agreement to sell Pine Bluff/Waynesville to Suzano, exiting remaining mill exposure and focusing on core North American converting operations .
    • Sequential improvement: revenues +7% QoQ to $1.338B and Adjusted EBITDA +9% QoQ to $183M, driven by seasonal volumes and lower incentive compensation .
    • Financial flexibility improved: term loan repricing/upsizing and revolver draw lower cash interest by ~$14M annually, extend maturities, and support deleveraging .
    • Quote: “We will exit our final remaining mill, allowing us to focus on our core North American converting operations.” – Michael King .
  • What Went Wrong
    • End‑market demand remained soft; customers traded service/quality for price and adopted just‑in‑time purchasing, pressuring price/mix and volumes (Foodservice volumes flat; Food & Beverage Merchandising volumes −5% YoY excluding Canton effects) .
    • Temporary operational disruptions at Pine Bluff following the planned outage increased costs and reduced production, materially impacting Q2 performance .
    • Guidance cut reflects slower demand recovery, increased pricing pressure, lower fixed‑cost absorption, and removal of Pine Bluff contribution post‑close (~$16M in Q4) .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Net Revenues ($USD Millions)$1,426 $1,252 $1,338
Net Income ($USD Millions)$(139) $10 $20
Diluted EPS ($USD)$(0.78) $0.04 $0.10
Adjusted EBITDA ($USD Millions)$217 $168 $183
Adjusted EPS ($USD)$0.20 $0.14 $0.17
Adjusted EBITDA Margin % (company)~15% 13.4% ~14%

Segment breakdown:

Segment MetricQ2 2023Q1 2024Q2 2024
Foodservice Net Revenues ($MM)$656 $597 $668
Foodservice Segment Adj. EBITDA ($MM)$128 $90 $109
Foodservice Segment Adj. EBITDA Margin %20% 15% 16%
Food & Beverage Merchandising Net Revenues ($MM)$805 $660 $674
Food & Beverage Merchandising Segment Adj. EBITDA ($MM)$109 $100 $93
Food & Beverage Merchandising Segment Adj. EBITDA Margin %14% 15% 14%

KPIs and balance sheet:

KPIQ1 2024Q2 2024
Net Cash Flow from Operating Activities ($MM)$(33) $94
Capital Expenditures ($MM)$41 $57
Free Cash Flow ($MM)$(74) $37
Total Outstanding Debt ($MM)$3,585 (as of Mar 31) $3,592 (as of Jun 30)
Net Debt ($MM)$3,514 (as of Mar 31) $3,497 (as of Jun 30)
Dividend per Share ($USD)$0.10 (declared Q1) $0.10 (declared Q2)

Notes:

  • YoY revenue decline reflects Canton mill closure and lower sales volumes; sequential improvement driven by seasonality .
  • Non‑GAAP metrics definitions and reconciliations provided in releases .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($MM)FY 2024$850–$870 $800–$820 Lowered
Capital Expenditures ($MM)FY 2024~$300 assumption ~$260 Lowered
Free Cash Flow ($MM)FY 2024$200M+ $180–$200 Lowered
Net Leverage (x)FY 2024 YE“High 3s” ~4x Higher
Pine Bluff Adj. EBITDA removal ($MM)Q4 2024 post‑close—Remove ~$16 Inclusion (transaction impact)
Dividend per share ($USD)Quarterly$0.10 maintained $0.10 maintained Maintained
Impairment charge ($MM)Q3 2024—~$320–$340 (non‑cash) New event

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023)Previous Mentions (Q1 2024)Current Period (Q2 2024)Trend
Consumer demand & foot trafficSeasonal volume declines; pricing/mix pressure Foodservice foot traffic down >3%; PTVE volumes outperformed Foot traffic declined; promotions in Q3 to mitigate; expecting modest H2 volume improvement Stabilizing late Q3/Q4
Pricing & pass‑throughsLower material costs passed through; pricing headwinds Lower contractual pass‑throughs; price/mix down 4% YoY Higher raw material pass‑throughs YoY, but intensified price pressure and down‑market mix Ongoing pressure
Pine Bluff divestitureExploring strategic alternatives Outage impact expected; H2 EBITDA uplift vs H1 Sale announced to Suzano; post‑close long‑term LPB supply agreement Strategic exit
Cost actions & PETs programFootprint Optimization announced Cost initiatives; PETs rollout underway Overhead cost reductions ~$15M; continued PETs productivity work Accelerating
Balance sheet/liquidityDebt reduced $550M in 2023 Revolver upsized to $1.1B, extended to 2029 Term loans repriced/upsized; annual interest −$14M Improved
Guidance trajectoryFY24 Adjusted EBITDA: $850–$870M Reiterated FY24 guide Guide cut to $800–$820M; FCF $180–$200M; capex ~$260M Lowered

Management Commentary

  • “We announced an agreement to sell our Pine Bluff mill and Waynesville extrusion facility to Suzano… allowing us to focus on our core North American converting operations.” – Michael King .
  • “We are taking actions to reduce overhead costs through targeted headcount reductions and curtailing spend… expected to reduce our operating costs by approximately $15 million through the remainder of 2024.” – Michael King .
  • “We repriced and upsized our senior secured term loans due in 2028… We expect the repricing and prepayment to reduce our annualized cash interest expense by approximately $14 million.” – Jon Baksht .
  • “We are revising our full year guidance to… Adjusted EBITDA of $800–$820 million… reflecting second quarter results and a slower than anticipated end market demand recovery.” – Jon Baksht .

Q&A Highlights

  • Volume/price‑mix bridge: Management expects low single‑digit volume growth in both segments in H2; the ~$19M headwind in the guidance bridge includes both volume and price/mix effects .
  • Pricing pressure: Contractual setup provides visibility; increased pricing pressure is being managed, with much of the negotiation work done exiting Q2 .
  • Foodservice margin compression: Driven by higher manufacturing costs (labor, utilities) and unfavorable mix despite flat volumes; some pressure expected to linger .
  • Working capital/inventory: Inventories will be worked down in H2 to normalized levels, supporting FCF; Q1 inventory was higher than desired given Q2 demand dynamics .
  • Pine Bluff financials: LTM EBITDA for Pine Bluff/Waynesville was approximately $(14)M with ~$35M capex; H2 2024 had been expected to contribute more due to no planned outage; post‑sale, contribution removed from results .
  • Capex & growth: Some capacity expansion deferred from 2024 into 2025 aligned to volume ramp with customer wins; shift toward growth‑focused capital deployment as mill exit lowers capital intensity .

Estimates Context

  • S&P Global consensus estimates for EPS, revenue, and EBITDA were unavailable due to a missing CIQ mapping for PTVE in our data source, so comparisons to Wall Street estimates are not included. We will update once mapping is available. (S&P Global data unavailable via tool)

Key Takeaways for Investors

  • Guidance reset and strategic mill exit: FY24 Adj. EBITDA lowered to $800–$820M; Pine Bluff sale removes mill volatility and aligns with capital‑light strategy; expect Q3 impairment of $320–$340M and Q4 contribution removal ($16M) .
  • Near‑term headwinds: Price sensitivity and down‑market mix persist; consumers strained, with foot traffic down and promotional activity ramping to stabilize volumes in H2 .
  • Cost discipline and liquidity: ~$15M H2 cost actions plus ~$14M annual interest savings provide earnings/FCF support; net leverage targeted at ~4x YE .
  • Segment resilience: Foodservice volumes outperformed broader foot traffic; Food & Beverage Merchandising stabilized margins YoY despite manufacturing cost pressure .
  • Watch catalysts: Q3 impairment recognition, Q4 transaction close, H2 volume trajectory with promotions, execution of PETs/footprint optimization, and progress on customer wins (some volume slips into early 2025) .
  • Dividend continuity: $0.10 per share maintained in Q1 and Q2, reinforcing capital return amid transformation .
  • Actionable: Position around transaction closing/impairment headlines and H2 execution; monitor pricing/mix and manufacturing cost inflation impact on margins, and evidence of volume stabilization through promotions and customer wins .