Reynolds (REYN)

Household products company Reynolds (NASDAQ:REYN) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 2.3% year on year to $931 million. On top of that, next quarter’s revenue guidance ($1.05 billion at the midpoint) was surprisingly good and 6.3% above what analysts were expecting. Its non-GAAP profit of $1.05 per share was significantly above analysts’ consensus estimates.

Company Overview

Best known for its aluminum foil, Reynolds (NASDAQ:REYN) is a household products company whose products focus on food storage, cooking, and waste.

Household 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.

Competitors that offer household products, especially in the areas of food preparation and storage, include Proctor & Gamble (NYSE:PG), Clorox (NYSE:CLX), and Kimberly-Clark (NYSE:KMB).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.

With $3.71 billion in revenue over the past 12 months, Reynolds carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Reynolds struggled to increase demand as its $3.71 billion of sales for the trailing 12 months was close to its revenue three years ago. This is mainly because consumers bought less of its products - we’ll explore what this means in the "Volume Growth" section.

This quarter, Reynolds reported modest year-on-year revenue growth of 2.3% but beat Wall Street’s estimates by 3.4%. Company management is currently guiding for a 3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection doesn't excite us and implies its newer products will not accelerate its top-line performance yet.

Revenue 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 (or lack thereof) 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 volumes have shrunk by 1.6%. This isn’t ideal for a consumer staples company, where demand is typically stable. In the context of its 1.9% average organic sales declines, we can see that most of the company’s losses have come from fewer customers purchasing its products.

In Reynolds’s Q3 2025, sales volumes dropped 2% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

Reynolds has bad unit economics for a consumer staples company, giving it less room to reinvest and develop new products. As you can see below, it averaged a 26.2% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $73.81 went towards paying for raw materials, production of goods, transportation, and distribution.

Reynolds produced a 25% gross profit margin in Q3, marking a 1.2 percentage point decrease from 26.3% in the same quarter last year. Reynolds’s full-year margin has also been trending down over the past 12 months, decreasing by 2.3 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Reynolds has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer staples business, producing an average operating margin of 14.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Reynolds’s operating margin decreased by 2.2 percentage points over the last year. Even though its historical margin was healthy, shareholders will want to see Reynolds become more profitable in the future.

In Q3, Reynolds generated an operating margin profit margin of 13.2%, down 2 percentage points year on year. Since Reynolds’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Reynolds reported adjusted EPS of $1.05, up from $0.41 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Reynolds’s full-year EPS of $2.25 to shrink by 27.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Reynolds has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 9.2% over the last two years, quite impressive for a consumer staples business.

Taking a step back, we can see that Reynolds’s margin dropped by 4.5 percentage points over the last year. This decrease warrants extra caution because Reynolds failed to grow its revenue organically. Its cash profitability could decay further if it tries to reignite growth through investments.

Reynolds’s free cash flow clocked in at $48 million in Q3, equivalent to a 5.2% margin. The company’s cash profitability regressed as it was 5.1 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Reynolds’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.5%, slightly better than typical consumer staples business.

Reynolds reported $53 million of cash and $1.74 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $661 million of EBITDA over the last 12 months, we view Reynolds’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $88 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Reynolds beat analysts’ revenue and EPS expectations this quarter. We were also glad its revenue guidance for next quarter trumped Wall Street’s estimates. On the other hand, its gross margin missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 1.6% to $24.10 immediately after reporting.

Updated: December 4, 2025 at 9:44 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Reynolds.

We cheer for all companies serving everyday consumers, but in the case of Reynolds, we’ll be cheering from the sidelines. First off, its revenue has declined over the last three years. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its cash profitability fell over the last year. On top of that, its shrinking sales volumes suggest it’ll need to change its strategy to succeed.

Reynolds’s P/E ratio based on the next 12 months is 14.3x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $27.75 on the company (compared to the current share price of $24.16).