Reynolds Consumer Products Inc

NASDAQ:REYN

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Reynolds Consumer Products First Quarter 2022 Earnings Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please note today’s call is being recorded.

I’ll now hand the conference over to your speaker today, Mark Swartzberg. Thank you. Please go ahead.

[Mark Swartzberg, Vice President, Investor Relations]

Good morning, and thank you for joining us on Reynolds Consumer Products first quarter 2022 earnings conference call. On the call today are Lance Mitchell, President and Chief Executive Officer; and Michael Graham, Chief Financial Officer. For our agenda today, Lance will focus on market conditions on our fundamentals, and Michael will review our quarter and outlook. Together, our remarks will be approximately 15 minutes, then we will open it up for your questions.

During the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management’s current expectations and involve risks and uncertainties that could cause actual results and outcomes to differ materially from those described in these forward-looking statements.

Please refer to Reynolds Consumer Products Annual Report on Form 10-K and other reports filed from time to time with the Securities and Exchange Commission and its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Please note management’s remarks today will focus on non-GAAP or adjusted financial measures. A reconciliation of GAAP measures to non-GAAP financial measures is available in the earnings release posted under the Investor Relations heading on our website at reynoldsconsumerproducts.com. The company has also prepared a few presentation slides and additional supplemental financial information, which are posted on Reynolds website under the Investor Relations heading.

This call is being webcast and an archive of it will also be available on the site. While we would like to answer all your questions during the Q&A session, in the interest of time, we ask that you ask one question and a follow-up and rejoin the queue if you have additional questions.

And now, I’d like to turn the call over to Lance Mitchell.

[Lance Mitchell, President and Chief Executive Officer]

Thanks, Mark. We started the year with another solid quarter in a very dynamic environment marked by inflation on top of the levels anticipated in our guide of early February. We delivered another quarter in line with our expectations. Some of the highlights are a record first quarter of net revenues, strong volume growth in our Hefty Waste & Storage and Hefty Tableware businesses. Additional share gains in multiple Cooking & Baking categories, waste bags, disposable tableware, and private label food bags. Additional pricing and cost savings in our plan to restore pre-pandemic profitability and improve staffing service and retailer in stocks.

Turning to our main drivers of growth pricing, consumer demand, innovation, and manufacturing, supply chain capabilities is worth remembering that our portfolio is well-positioned, not only for shifts in household mix of brands and store brands, but also for increasing activity outside of the home. In the area of pricing, inflation has increased since our last earnings call.

Our response has been disciplined and quick with additional pricing implemented across our categories. Hand in hand with those increases, we’ve seen an increase in elasticity in some of our categories, particularly for foil, but the degree varies and remains below pre-pandemic levels. Mike will review our guide and our guide builds in this increase in our elasticity assumptions.

Turning to consumer demand. In foil, the combination of elasticity and reopening is a headwind. And one, we are addressing through a series of measures including higher trade and advertising. It’s important to also note that we estimate that more the half of the Reynolds Cooking & Baking volume decline in the quarter was due to timing of retailer inventory replenishment. In many of our other categories, including parchment paper, waste bags, plastic party cups, consumption continues growing at faster than average annual rates than it did prior to the pandemic. Those are trends you’ll see in this syndicated data and it’s evident in our research.

According to a late April report from Cantor, consumers are eating out less often to compensate for inflation. And in our latest Harris survey, which was also completed in late April. We found what we expected for foil and the usage of many of our categories remains well above pre-pandemic rates. As for our performance and track channels, RCP branded dollars share and volume share and waste bags, disposable tableware, slow cooker liners, oven bags, plastic wrap and bakewares up versus year ago levels. And we’re seeing RCP share increase in multiple e-commerce categories too.

The third driver of our growth is innovation. Reynolds Wrap every day non-stick foil, Hefty Fabuloso waste bags, Hefty ECOSAVE disposable tableware remains standouts, recruiting new users and gaining distribution. Reynolds Kitchens, air fryer liners a new Hefty Fabuloso spend and waste bags and private label standard fill press to close food bags are off to strong starts.

And our new product pipeline is robust with upcoming introductions, including Reynolds Kitchens, compostable wax paper, and a number of new branded products from Hefty Waste & Storage and Hefty Tableware. And finally Hefty EnergyBag is growing, strongly in existing geographies and we plan to expansion of the program to additional municipalities later this year.

Our fourth growth driver is manufacturing and supply chain capabilities. As I said in my opening remarks, retailer in stocks of our products have improved across our categories, demonstrating our commitment to restoring service to our customers pre-pandemic standards. Before I pass the call over to Michael, I’d like to leave you with the following. We began the year with stabilizing commodity costs, but also knew the environment would be dynamic.

Inflation has accelerated since early February and navigating through these times remains challenging. We’re leading our categories and executing with excellence in our mission of simplifying daily life. So consumers can enjoy what matters most. I have enormous confidence in our people and see tremendous potential for Reynolds Consumer Products.

With that, over to you, Michael.

[Michael Graham, Chief Financial Officer]

Thanks, Lance, and good morning, everyone. I will briefly review our first quarter results and then turn to our outlook. Net revenues in the first quarter were $845 million, an increase of 12% on top of the record first quarter net revenues of $757 million in 2021, primarily driven by price increases.

Adjusted EBITDA for the first quarter was $112 million, down 20% versus last year’s first quarter adjusted EBITDA of $140 million, driven by higher material, manufacturing, logistics and advertising costs as well as lower volume, which was significantly offset by price increases. Adjusted earnings per share for the quarter was $0.26 cents.

The details of our segment performance are in the press release and our 10-Q. However, I do want to cover a few highlights here. Volume grew 6% in Hefty Waste & Storage driven by strong demand and easing of staffing and logistics related challenges. Volume grew 10% in Hefty Tableware driven by strength across our Hefty and store brand portfolio. Volume declined 14% in Reynolds Cooking & Baking with more than half of the decline attributable to timing of retailer inventory replenishment and the rest related to a combination of lower consumption and lower reroll sales.

Presto Products volume declined 3%. And in terms of liquidity, working capital was a use of cash in the quarter and capital spending was $28 million. This is a business that generate strong cash flows, in particularly strong cash flows, when commodity costs are stable or declining. A number of initiatives, targeting working capital improvements are also under the way.

Turning to our outlook for the second quarter of fiscal 2022, we expect net revenues to grow 6% to 8% on $873 million in the prior year. Adjusted EBITDA to be in the range of $110 million to $120 million. Adjusted EPS to be in the range of $0.23 to $0.27 per share.

For the fiscal year 2022, while we are not changing our previous disclosed guidance range, we are updating our expected performance within previously stated ranges as follows. Net revenues to be in the high end of the range of 9% to 12% on $3,556 million in 2021. Adjusted EBITDA to be near the low end of the range of $615 million to $655 million. Adjusted EPS to be the near the low end of the range of $1.56 to $1.70 per year. Net debt to be approximately $1.9 billion to $2.0 billion at December 31, 2022.

As Lance said, we do expect a pickup in elasticity, particularly in foil, but that elasticities remain below pre-pandemic levels. Reopenings were also a factor in the first quarter, which we are monitoring closely. We expect pricing to drive revenue growth and volume to be down low single digits for the year, including the first quarter impact from timing of retailer inventory replenishment.

We believe retailer inventories are better aligned to consumer demand over the remainder of the year. We assume rates for key commodities remain stable by comparison to the end of April levels and estimate total additional cost pressures of approximately $450 million for the year, up $50 million versus nearly $400 million in early February.

We estimate depreciation and amortization of approximately $120 million for the year, interest expense of approximately $60 million for the year and an effective tax rate of approximately 25% for the year. We expect capital spending of $150 million to $170 million for the year, including continued investments in automation and other revolution programs.

As it relates to phasing, you will recall that when we reported results in early February, we expect previous implemented price increases in prior year price comparisons to drive sequentially slower year-on-year top line growth as the year progressed. But as you know, we have experienced additional cost increases, since early February and implemented another round of price increases for the purposes of offsetting these costs. These changes resulted in a shift in our expectations to higher revenue growth in the second half than in the first half of the year, while also moving expected year-over-year earnings growth into the second half of the year.

Now, before I turn the call back over to Mark and your questions, I’d like to leave you with the following. Our competitive position is strong. Our share is growing in most of our categories and we are unwavering in our commitment to restoring pre-pandemic profitability. We are investing in 2022 and the long-term, we are working on multiple working capital initiatives to help mitigate the cash flow pressures we have seen from steep increases in commodity costs. And our capital allocation priorities are unchanged. Invest to strengthen and extend our competitive advantage and earnings potential, deleverage with a target ratio of 2 to 2.5 times EBITDA, return excess cash to shareholders via dividends and opportunistically pursue strategic bolt-on acquisitions.

With that, I will hand the call back over to you, Mark. Thanks.

[Mark Swartzberg, Vice President, Investor Relations]

Thanks, Michael. As I turn it over to the operator for the questions, I’d like to remind you that we ask that you ask one question and a follow-up and then rejoin the queue if you have additional questions. Operator?

[Operator]

Thank you. [Operator Instructions] Thank you. And our first question comes from the line of Kaumil Gajrawala with Credit Suisse. Please proceed with your questions.

[Kaumil Gajrawala, Credit Suisse]

Can you talk maybe a little bit about Cooking & Baking and maybe some of the components of what’s behind some of that decline?

[Lance Mitchell, President and Chief Executive Officer]

Hi, Kaumil, this is Lance. The first quarter household foil category consumption was down 8%. The remaining shortfall of our Q1 volume was driven by inventory adjustments at retailers. So approximately half was event driven and half due to some consumer trends. The consumer trends in the household foil category finally was driven by a lot of numerous factors, including changes to use occasions, shifts to smaller footages, shifts from heavy duty to everyday age foil, and some prey down from brand to private label.

So people aren’t leading the category, but changing item purchases. And our guide does contemplate the guides designed in Q2 and then similar consumer consumptions in the second half. We are increasing our investments in higher trade promotions and advertising to encourage new use occasions and adjust price points to drive growth. And we’re also accelerating our revolution initiatives that contribute to earnings growth.

[Kaumil Gajrawala, Credit Suisse]

Got it. Can I just follow-up on maybe one of those comments on inventory – retail inventory? Is it that retailers are now starting to bring it in perhaps maybe more than planned? Or is there something else going on, just to make sure I understand.

[Mark Swartzberg, Vice President, Investor Relations]

Good morning, Kaumil? This is Mark and good morning, everyone. So retailer inventory adjustments were – as you heard Lance say, what I’ll call, things that we worked through in the quarter. And of course, we built that into our guide. I think, when you look forward, you should think that our guide anticipate will be a better match between shipments and consumer takeaway. And that headwind won’t be the kind of headwind it was in the first quarter.

[Kaumil Gajrawala, Credit Suisse]

Got it. Perfect. Thank you.

[Operator]

Our next question is from the line of Nik Modi with RBC Capital Markets. Please proceed with your questions.

[Nik Modi, RBC Capital Markets]

Yes. Thank you. Good morning, everyone. Lance, I was hoping maybe you can give a little bit more detail on category growth across the portfolio. And then just kind of within that context, how your shares are progressing. And I’m more interested in just trying to understand, price gap situations right now and how you feel about them at this moment, given all the pricing. Thanks.

[Lance Mitchell, President and Chief Executive Officer]

Yes. Two part questions. So let me handle the share first. We’re doing extremely well across the vast majority of our product lines and categories. Across our portfolio, our brand has gained dollar and EQ share in 70% in the categories in which we operate. So the vast majority of the products and a number of categories, we continue to see category volumes continue to growth faster average annual rates than we saw prior the pandemic.

In Cooking & Baking, we’re seeing three year CAGRs ranging from mid single digits to – 10% to 11%, for example, parts and paper. So in the Cooking & Baking segment of household foil, that’s been challenged from a gross standpoint in the quarter. Waste & Storage, we’re seeing three year volume CAGRs in the 2% to 3% for waste bags. And a Tableware, we’re seeing CAGRs at 5% to 6% for plastic party cups.

So our Hefty business units continue to benefit from a combination of category demand in our continued share growth and has continued significant potential for continued growth. On the price gap standpoint, across the portfolio, it’s represented by those share gains. We’re pleased with price gaps with the except for household foil. And as I mentioned a moment ago, the first question, we’re changing our trade strategy to adjust price points and price gaps to across the portfolio.

[Nik Modi, RBC Capital Markets]

Thank you.

[Operator]

Our next question is from the line of Rob Ottenstein with Evercore. Please proceed with your questions.

[Rob Ottenstein, Evercore]

Great. Thank you. And couple of questions. One I want to follow-up on the share question a little bit more detail, obviously, you’re doing very well. Is there any way to kind of dissect your market share gains between how much is driven by innovation, how much is driven by greater availability, displays, anything along those lines? And then is it getting reflected in more shelf space or anything that we can point to suggest that these share gains can be sustainable any competitive reactions? So that’s kind of the first question. And then it bleeds into the second question a little bit, which is kind of what are your second quarter volume assumptions and does that those assumptions assume continued share gains or losses? How do you see that developing? Thank you.

[Lance Mitchell, President and Chief Executive Officer]

Well, I’ll answer the first part. We’ll let MG, the second part as it relates to the second quarter outlook. As it relates to share gains across the portfolio, first of all, two points of our revenue growth in the quarter came from innovations. And those occurred across all four segments. So it was driven pretty balanced across all four of our business segments to get that two point gain. And in my opening remarks talked about several of those products that were driving those gains.

The balance of gain is come from distribution as well as just consumer habits, continuing post endowment. So the consumer habits of continuing to stay home more frequently, people are going back to the office, but not five days a week. People are not going out to eat as often, because of the high cost of eating out and sometimes service related issues. So our research tells us that people are still spending time at home and that drives use occasions for our products. I’ll let Mike on Q2.

[Michael Graham, Chief Financial Officer]

Yes. So on the Q2 question, we’ve taken a pretty prudent approach to our guide. We expect RCO volume to be down mid to high single digits in the quarter, driven by rentals consumer, a rental Cooking & Baking. Looking forward, we expect better alignment between shipments and household consumptions. Now that retailer inventory have been adjusted Mark just spoke to that a bit. And in foil, we expect declines in household consumption to continue down at similar rates to the estimated 7% decline that we saw in the first quarter. We’re also increasing trade promotions advertising to our growth in our foil business.

[Rob Ottenstein, Evercore]

Thank you.

[Operator]

Thank you. Our next question is from the line of Bill Chappell with Truist Securities. Please proceed with your question.

[Stephen Lengel, Truist Securities]

Hey, good morning guys. This is Stephen Lengel for Bill Chappell. Would you guys be able to kind of break down the $50 million increase in cost? Can you guys kind of put it into like buckets of which is impacting you the most of what you’re seeing? Thank you.

[Lance Mitchell, President and Chief Executive Officer]

The $400 million becoming $450 million as the drivers of that incremental $50 million.

[Michael Graham, Chief Financial Officer]

Yes. So when I think about that the cost of materials are approximately two-thirds of the COGS. And then so that’s approximately about 45 points of those from commodity. Aluminum and polyethylene are clearly our largest and followed by polystyrene and other resins. So an annualized basis about $0.05 increase in commodities has how it has a following impact. Aluminum has about a $20 million, polyethylene about $25 million to $30 million and polystyrene about $15 million.

[Stephen Lengel, Truist Securities]

Great. Thank you very much.

[Operator]

Thank you. The next question is from the line of Andrea Teixeira with JP Morgan. Please proceed with your questions.

[Andrea Teixeira, JP Morgan]

Good morning. So my question is on the cost savings to mitigate that $450 million, I think the resolution is probably part of that and if you can update us on that. And my second one is just a clarification on the shipments against retail inventory, is that mostly on the Cooking & Baking segment or you’re seeing across the board. And just to clarify also, if the timing you expect what’s embedded in your second quarter is just in the second quarter, and then we should be seeing that clear in the second half of the year. Thank you.

[Lance Mitchell, President and Chief Executive Officer]

Yes, I’ll answer the second part of that question first, Andrea. The retailer inventory was exclusively in household foil. We didn’t see that in any of our other products and categories, it was specific to that product line within the Cooking & Baking segment. We are expecting there to be some additional adjustments to retailer inventory in the second quarter, and then it’ll be cleared out by the time we hit the second half of the year. If there was a lot of inventory that they had taken in and it’s a high dollar amount of inventory. So they’re carefully managing the dollars of the inventory they’re carrying at retail as well, because of working capital concerns. So I’ll turn the first part of question over to Mike.

[Michael Graham, Chief Financial Officer]

Yes. So as it relates to revolution and you guys – you probably recall this, we talked about this a bit in last quarter. So we set out to deliver a little more than two points of margin improvements through revolution cost savings in 2021. So that’s a little more than about $70 million and we beat that target. We’re planning to deliver incremental savings in that range again this year. So that’s, I guess, what you could expect to see from a revolution standpoint.

[Andrea Teixeira, JP Morgan]

Is that – sorry, I couldn’t hear $70 million, right?

[Michael Graham, Chief Financial Officer]

Yes.

[Andrea Teixeira, JP Morgan]

Okay. Thank

[Lance Mitchell, President and Chief Executive Officer]

Broadly. And I would also add and we said this in the Michael’s prepared remarks, we did take another price increase, because of commodity cost increases in the first quarter that are being implemented in second quarter. That’s across all four segments. It is specifically higher in Tableware and rentals where we saw the bigger cost increases, but we did take pricing in all four segments.

[Andrea Teixeira, JP Morgan]

Thank you both. I’ll pass it on.

[Operator]

Thank you. The next question is from the line of Lauren Lieberman with Barclays. Please proceed with your questions.

[Lauren Lieberman, Barclays]

Great. Thanks. Good morning. The incremental pricing is actually exactly what I had wanted to ask about. So you said it’s – in all categories, it’s been announced, but will be implemented during second quarter. I guess, I was curious early – late in the quarter, what are we talking about? And what’s your sense for how this aligns or doesn’t with what competitors are doing? When my – I can preempt my follow-up and saying, particularly in the Trash segment, I was curious where things stood now in terms of you and competitors kind of being in line. I know that you had moved early and you were sort of ahead of the game on pricing. But I was curious where that stood now and how you would describe price gaps between you and glad in particular versus where they were prior to the pandemic. Thank you.

[Lance Mitchell, President and Chief Executive Officer]

Well, the pricing that we’ve taken is across the board. It is varied in timing. The Cooking & Baking increase is in May, actually is effective May 7. The Tableware and the Hefty price increases in the minor one in Presto occurs in June. The Hefty Waste & Storage increase, I was consistent of what we’re seeing from competitors from an amount and timing standpoint.

[Lauren Lieberman, Barclays]

Okay, great. And then what about the price gaps dynamic now versus where you’d describe things were pre-pandemic have they caught up?

[Lance Mitchell, President and Chief Executive Officer]

Yes. We’re pleased with the price gaps across our categories, we’ve assessed the household foil at this point in time. We’ve got to make some adjustments there, have these slider food bags, we’re seeing some trade down from the slider food bag segment to Presto close. So we’re looking at some adjustments there primarily through trade to ensure the price gap there are satisfactory to ensure continued growth. And we are evaluating another Hefty waste bag price increase that would be effective in the next several months.

[Lauren Lieberman, Barclays]

So in addition to what is announced already.

[Lance Mitchell, President and Chief Executive Officer]

Yes, that would be an addition – already.

[Lauren Lieberman, Barclays]

Okay.

[Mark Swartzberg, Vice President, Investor Relations]

Lauren, this is Mark. I want to build on what Lance said, because it pertains to a question Michael just answered. So that, that the level of cost increased of course, we got it through $450 million for the year versus $400 million in our prior guide. And we just talked through the pricing actions we’re undertaken that incremental $50 million is a function of higher domestic and import freight costs has increased commodity costs, particularly in area of resin because as you probably noticed, aluminum costs have started coming down. And then there’s another $10 million or so in the area of increased manufacturing at third-party supplier costs. So that’s the origin, if you will, of the incremental price increases that Lance just spoke about.

[Lauren Lieberman, Barclays]

Okay. Great. All right. Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question will be coming from the line of Peter Grom with UBS. Please proceed with your questions.

[Peter Grom, UBS]

Hey, good morning, everyone. Hope you’re doing well. So I just wanted to ask about gross margin both for the year and how we should think about phasing. Maybe just to start, I know Michael, you previously expected gross margin to be up 100 basis points year-over-year for 2022. 1Q seemed to be a bit tougher and I guess the implied EBITDA guidance in Q2 seems to embed into other challenging quarters. So just any thoughts on the full year outlook, and then maybe specifically how we should think about Q2 in the back half of the year.

[Michael Graham, Chief Financial Officer]

Yes. So just to reiterate, so if you think about our gross margins that we were challenged with in Q1, right. The lion share of that was really driven by commodities about 11 points. Then a little bit about the denominator change. And we’ve talked about the math in the past, that’s worth about 4 points. Logistics and other manufacturing costs is about 2 points and mix in scale is another 2 points.

So that was all offset to some degree by a pricing action. So net, net, that’s overall. As we look forward, obviously, we’ve taken more pricing. We do see commodity costs start to taper off. And so a combination of the pricing and commodity costs starting to taper off will set us up for benefit.

The overall manufacturing logistic cost I would anticipate is going to be pretty consistent. So when I think about overall margins, I think that you’ll see a little bit stronger result going forward, primarily given the fact that pricing is going to continue where you see our commodity costs a taper off a bit.

[Peter Grom, UBS]

Okay. That’s helpful. And then I just wanted to ask about the guidance particularly kind of what’s implied in the back half of the year. And just, I guess, I know you’re taking incremental pricing, but the 6% to 8% growth in Q2, it just seems to imply that you expect mid-teens top line growth, in the back half of the year to kind of hit the high end of your initial guidance. And so it just seems like a lot of pricing on top of the low double-digit just cycling a year ago. So I’m just trying to understand, how comfortable are you that this level of pricing, when you thinking on like a multi-year period that you will still see elasticities above pre-pandemic levels.

[Michael Graham, Chief Financial Officer]

So let me just talk to you about in a couple components, right? One is the – in the second half, we do expect some of volume acceleration and this is driven by the increased traits then increasing advertising and strong innovation trends. You’ll also recall that company volumes are flat in Q3 of 2021, which take where posting a minus 4%, which of course is our business statement that is showing great strength. So I mean in addition to some of the other actions that I do want you to take into consideration some of the volume accelerations that we expect in the second half.

[Lance Mitchell, President and Chief Executive Officer]

But to add to that, we have built in some expectation of the elasticities in the both the second quarter, as well as the full year because of the magnitude of some of the pricing.

[Peter Grom, UBS]

Got it. Thank you so much. I’ll pass it on.

[Operator]

Our next question is from the line of Mark Astrachan with Stifel. Please proceed with your questions.

[Mark Astrachan, Stifel]

Thanks, and good morning, everyone. Wanted to ask about unsurprisingly pricing and commodities. So if prices kind of stay where they are from a commodity standpoint, could you maybe talk a bit about how historically you’ve either given back price or kind of promoted to give some of that back. I know you talked a bit about the increased trade spending. Is that sort of related to that? Or is it just more on stimulation of volume and then somewhat related to that given kind of where we are more commodity pressure, but more pricing, you still think it’s reasonable to get back to pre-pandemic growth profit dollars in 2023.

[Lance Mitchell, President and Chief Executive Officer]

I’ll take the first part of that question. Then Michael could talk about the total gross margin dollars part of the equation. From a pricing standpoint, when pricing goes up and commodities come down, historically we have been able to margin up and recover margins across our portfolio.

We do use that opportunity to correct price points and do that through not just individual promotions on a specified period of time, but also by things called temporary TPRs, which are more permanent type price reductions, but make sure you get the price points, right and the gaps right across the categories. And that’s what I was referring to earlier when I talked about what we were planning to do in the household foil category to adjust pricing, not just through promotionals, but to ensure that we’re getting the right price points.

Aluminum had gone up to almost $2 a pound in March. It was just short of that. At one point, it actually crossed $2 a pound. This Friday at $1.67. So we have seen a 30% type of reduction in aluminum in the last 30 plus days. And it presents an opportunity for us as we go forward now to the margin up and really use that to corrective price points. And Mike, you want to talk about gross margin dollars?

[Michael Graham, Chief Financial Officer]

Yes. We’ve talked about this before. We’ve talked about this in context of restoring our pre-pandemic profitability. So just kind of give you a sort of an understanding we expect gross profit, if you and we and all of us expect gross profit dollars grow in line is volume, all else being equal. To illustrate this, for 2022, if we grow 2019 gross profit dollars by $888 million, so in other words, 8%, and that’s basically what our volumes kind of changed. You would expect an implied of gross profit about $950 million.

So as we look forward, there’s three things that we are really focused on reducing our reliance on higher cost third-party suppliers. This is your result of staffing challenges as well as logistics challenge. So that’s a focus area for us going forward. We continue to make improvements towards our labor challenges and we’ve invested heavily in this overall space in terms of the wage rates, training, really do a deep dive across all of our locations to understand – understanding why people are changing and turning over at the rates we’re having, we made some tremendous steps in that regard and we feel very comfortable around the progress. And so that’s going to allow us to continue to get product out the door efficient.

The other big thing that, that probably won’t happen in this year, but it – but hopefully we’ll see some early signs that is the competitive pricing front in the wasting storage space. So obviously we know from a gross margin standpoint, we haven’t gotten full recovery from a pricing standpoint in that overall space, but from competition reacts appropriately to the overall increases, I think there’s an opportunity here that we’ll see some additional recovery on gross margins as well.

[Mark Astrachan, Stifel]

Great. Thank you, guys.

[Operator]

Thank you. [Operator Instructions] Our next question is a follow-up from the line of Andrea Teixeira with JP Morgan. Please proceed with your questions.

[Andrea Teixeira, JP Morgan]

Thank you for taking my follow-up. On Michael, you mentioned a little bit of the aluminum cost and then the 20% that you’re seeing sequentially and potentially coming back. I just want to clarify the profit dollars. I think you mentioned something $950 million. I don’t know if I overheard it correctly.

So if you can number one kind of give us an idea how you’re contracted for aluminum for into the rest of the year and potentially into 2023. If you’re being opportunistic about this reduction or waiting a bit more to see how it lands? And then on the profitability, I just want to clarify, you said you want to go back to that pre-pandemic profitability and what is the timeframe?

[Michael Graham, Chief Financial Officer]

Well, if we see – let me start with the second part of your questions. And if we see commodity costs update, we could very well see this happening as early as 2023. Now, I mean, but that, that requires commodity cost to abate and inflationary pressures to come down significantly. So that that’s the second part of your question. And I want to make sure I understand the first part, because I disconnected a little bit here on that one. So can you help me on your first part of your question?

[Andrea Teixeira, JP Morgan]

Yes. The – it was just the how you are seeing like that it was related to aluminum anyways, but I was just trying to see how you contracted into the 2023 cost for now because of the aluminum decline?

[Michael Graham, Chief Financial Officer]

Well, I mean aluminum prices and rates, I mean, that that’s pretty – that that is not something that we’re really locked in from a contractual basis, it’s market based. So those aluminum rates come down, we get the benefit around that. Recognizing the fact that there’s a flow through of inventory. And then we do have a side room model of inventory result. So as those rates come down and we work through our inventory position, you’ll start to see the benefits of that flow through from aluminum perspective. And I think you probably know aluminum rates have come down here recently a bit.

[Andrea Teixeira, JP Morgan]

Okay. That’s fair. Thank you.

[Operator]

Thank you. Our final question will be coming from the line of Rob Ottenstein with Evercore. Please proceed with your questions.

[Rob Ottenstein, Evercore]

Yes. I was just wondering if you could talk a little bit about the dynamic that is emerging on the aluminum side and better understand because you don’t really have any branded competitors. So this is being driven presumably by the retailers. And maybe you could talk a little bit about your discussions with retailers on this point.

Are they changing how they look at the category or is it just something that, that they just like everybody else is just having a really hard time dealing with the kind of incredible volatility and the prices. And maybe they have an adjusted in a rational way or just any color around how the category is developing would be helpful. Thank you.

[Lance Mitchell, President and Chief Executive Officer]

Yes. It’s been a very dynamic environment for the – particularly the last year across the category and it varies by channel. So we have worked on this by retailer by retailer basis, and we’re seeing the retailers working through it with us. We are the only brand in the category. And as I described in the – I think the first question that that came through, there’s a lot of consumer behavior changes that are occurring because of the higher prices and costs trading down to lower footages, trading from heavy duty to everyday foil gauges.

And so working through all those dynamic changes with the retailers and changing price points is what we’re partnering with them on as well as ensuring we get the right price gaps to the private label. So it – the best I could describe is they’re working with us in a partnership way and it’s in a very dynamic environment.

[Rob Ottenstein, Evercore]

Thank you.

[Operator]

Thank you. At this time, we’ve reached the end of the question-and-answer session. I’ll now turn the call over to Lance Mitchell for closing remarks.

[Lance Mitchell, President and Chief Executive Officer]

Thank you for your questions that we appreciate your time this morning. I remind you that our business is strong. We’re growing share across 70% of our portfolio, and I want to thank our employees and our retail partners for their contributions and their dedication during these really challenging times. Thank you.

[Operator]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.