Reynolds (REYN)

Household products company Reynolds (NASDAQ:REYN) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 1.8% year on year to $818 million. On the other hand, next quarter’s revenue guidance of $897.5 million was less impressive, coming in 2.2% below analysts’ estimates. Its non-GAAP profit of $0.23 per share was in line with 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).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $3.68 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 $3.68 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 a rather uninspiring 1.8% year-on-year revenue decline to $818 million of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 3.5% year-on-year decline 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 suggests 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 2%. This isn’t ideal for a consumer staples company, where demand is typically stable. In the context of its 2.3% 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 Q1 2025, sales volumes dropped 4% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

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 26.4% gross margin over the last two years. That means Reynolds paid its suppliers a lot of money ($73.59 for every $100 in revenue) to run its business.

Reynolds’s gross profit margin came in at 23.1% this quarter, down 1 percentage points year on year and missing analysts’ estimates by 3.2%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Reynolds has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 14.7%. 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.

Looking at the trend in its profitability, Reynolds’s operating margin might fluctuated slightly but has generally stayed the same over the last year, highlighting the consistency of its expense base.

This quarter, Reynolds generated an operating profit margin of 9.3%, down 1.5 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.

Reynolds’s EPS grew at an unimpressive 3.6% compounded annual growth rate over the last three years. This performance was better than its flat revenue, but we take it with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

In Q1, Reynolds reported EPS at $0.23, in line with the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Reynolds’s full-year EPS of $1.67 to shrink by 1.6%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

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 11.6% 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 6.1 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 $17 million in Q1, equivalent to a 2.1% margin. The company’s cash profitability regressed as it was 6.3 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? A company’s ROIC explains this by showing how much operating profit it makes compared 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 10.8%, slightly better than typical consumer staples business.

Reynolds reported $58 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 $673 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 $95 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.

We struggled to find many positives in these results. Its gross margin missed and its EBITDA fell short of Wall Street’s estimates. Full-year EBITDA guidance missed, and full-year EPS was lowered. Overall, this was a softer quarter. The stock remained flat at $23.70 immediately following the results.

Updated: July 10, 2025 at 10:51 PM EDT

Before deciding whether to buy Reynolds or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We cheer for all companies serving everyday consumers, but in the case of Reynolds, we’ll be cheering from the sidelines. To kick things off, its revenue growth was weak over the last three years, and analysts expect its demand to deteriorate over the next 12 months. 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 projected EPS for the next year is lacking.

Reynolds’s P/E ratio based on the next 12 months is 13.4x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $26.25 on the company (compared to the current share price of $22.10).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.