By the numbers: Q2 2024
Net revenue: $1.34B
Down 6.2% year over year
Net revenue for food service segment: $668M
Up 1.8% year over year
Net revenue for food and beverage merchandising segment: $674M
Down 16.3% year over year
- Financial outlook: Weak demand, cost-conscious consumers and unexpected additional downtime at the Pine Bluff, Arkansas, mill are leading reasons for Pactiv Evergreen’s lagging performance, according to executives on the company’s second-quarter earnings call Thursday. Overall volumes were down 3% in the quarter, they said; food and beverage merchandising volumes dipped 5%, while food service volumes remained flat. Adjusted earnings before interest, taxes, depreciation and amortization fell nearly 16% year over year. “The second quarter fell short of our expectations,” said CEO Mike King, who later detailed cost-cutting actions to drive future growth.
- Cost-cutting: Pactiv expects to reduce its operating costs by approximately $15 million through the remainder of 2024 by taking new actions, such as curtailing spending and reducing headcount, King said. Executives did not announce any specific closures or layoffs. These cost savings are unrelated to the footprint optimization plan announced in February, King said; the earlier plan was estimated to affect about 10% of the company’s 100-facility footprint. Last year, the company closed its paper mill in Canton, North Carolina, and its converting facility in Olmsted Falls, Ohio, eliminating about 1,300 jobs.
- Facility sales: Pactiv Evergreen announced in July that it would sell its Pine Bluff paper mill and its extrusion facility in Waynesville, North Carolina, to Brazil-based Suzano for $110 million, following more than a year of examining options for those facilities as part of its beverage merchandising restructuring. The company “concluded that being vertically integrated into our paper mills will not yield sustainable value creation and was not in line with our strategic ambitions,” and it instead is focusing on core strengths in converting, King said. The transaction is expected to close in Q4, perhaps as early as October. At the close of this deal, the beverage merchandising business restructuring will be complete.
- Consumer pullback: “Consumers are pretty beat up,” King said. “After almost three years of elevated inflation, the average consumer is financially stretched and has become more price conscious.” Not only have consumers been trading down to less costly products and services, but they’ve also reduced overall spending in certain sectors. Specifically, quick-service restaurant sales were down in Q2; this occurred not only in year-over-year figures, but the pace “accelerated in Q1 and continued into Q2, impacting our performance,” said CFO Jon Baksht. “That said, we believe our food service segment, as a whole, was more resilient than the broader industry.”
- Customers pull back: Following periods of destocking and struggling demand, Pactiv Evergreen’s customers are similarly focused on cost. “This has also impacted mix as customers opt for lower-priced products within our portfolio, or move down market,” King said. Some customers continued promotional activity in an attempt to boost sales. Others are continuing “shrinkflation,” or shrinking existing product sizes while keeping the consumer cost static. King said Pactiv Evergreen aims to be “the ready, fast provider” as customers alter their products.
- Outlook: Executives predict the near-term end market weakness to continue for the rest of 2024 and lowered their financial expectations. While they previously had anticipated full-year volume growth in the low-single digits, they now predict that volumes will be down in the low-single digits. They reduced anticipated full-year adjusted EBITDA to a range of $800 million to $820 million, down from $850 million to $870 million.
