Reynolds Consumer Products Inc (REYN) Q3 2021 Earnings Call Transcript

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Reynolds Consumer Products Inc (REYN 0.86%)
Q3 2021 Earnings Call
Nov 5, 2021, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, welcome to the Reynolds Consumer Products, Inc. Third Quarter 2021 Earnings Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions]

I will now turn the conference over to your host Mark Swartzberg, Vice President of Investor Relations. Thank you. You may begin.

Mark Swartzberg -- Vice President of Investor Relations

Thank you. Good morning and thank you for joining us on Reynolds Consumer Products third quarter 2021 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 and 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 website.

We'd like to answer all of your questions during the question-and-answer session. In the interest of time, we ask 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

Thank you, Mark. We delivered another quarter in line with our expectations in spite of additional cost and supply chain challenges. Thanks to the hard work and dedication of our team.

We grew revenue 10% on top of last year's record third quarter net revenues, including an approximate 2 percentage point benefit from a one-time sale of excess raw materials in the quarter. We did sell in spite of production disruptions at third-party suppliers and continued import delays. Our market shares remained strong across most of our products and we achieved our earnings forecast in the face of additional material, labor and logistics costs and a more challenging environment for staffing and logistics services.

We are narrowing our earnings guide within our previous range to reflect additional staffing and supply chain pressure, as well as higher rates for key commodities versus July levels. Mike will walk through those drivers of this pressure and the pricing actions we are taking to offset material cost increases. I remain, firmly committed to implementing price increases to offset material cost increases at a pace and amount appropriate to market conditions. Michael will also talk through revolution cost savings, which are tracking ahead of plan and remain a significant source of margin recovery. Increased investment in automation is a major contributor to revolution cost savings.

Now let's return to the topline. We expect four factors to drive accelerating revenue growth for RCP in the fourth quarter. They are consumer demand, price increases, innovation and expanded manufacturing and supply chain capabilities. Together with our market share performance we expect these drivers to remain a sustained source of long-term growth. First, consumer demand, household use of our products remain elevated versus pre-pandemic levels. According to our latest Harris Poll, which we conducted again in September, everyday use of foil is not more than fourfold versus pre-pandemic levels and weekly use of waste bags and food bags is up more than 30% versus pre-pandemic levels.

In addition, according to our fourth numerator poll, the overwhelming majority of respondents continue to expect to maintain or increase their foil, waste bag and food bag use beyond 2021. Our household penetration has increased from pre-pandemic levels with 24 of 25 households now having one or more of our products. This sets up our categories, our brands and our product portfolio for continued strong performance and that's what we're seeing.

On an omnichannel basis through October 10th branded dollars share in foil, waste bags and disposable cups and dishes is up versus year ago levels and improving sequentially. These figures include e-commerce and in track channels it's the same trend. Brand dollar share in foil, waste bags and disposable cups and dishes higher than year ago levels and improving sequentially. We're also building on our e-commerce momentum. E-commerce related sales are growing strong double digits. Growth was broad-based across RCP and major e-commerce retailers. And we continue to expand participating on third-party marketplaces, while also testing and launching direct to consumer initiatives.

The next driver of our revenue growth is price. Our third round of pricing actions was implemented as planned and a fourth round goes into effect during the first quarter of next year. We expect sequential improvement in profitability in the fourth quarter and a pronounced improvement in profitability by the end of the first quarter of 2022, as a result of these increases. This assumes key commodity rates stabilize. Michael will speak more to the timing and results of our pricing actions in a moment. I know that elasticity is also a topic of interest to all of you. We're watching that closely, given the amount of pricing across retail. As you know, historically our categories have demonstrated low elasticity by comparison to many consumer staple categories, that remains the case and we factored our latest research on elasticity into our guide.

The third driver of our strong growth is innovation, Hefty Fabuloso continues to exceed our expectations and drive volume, thanks to Hefty's quality, consumer preference for Colgate-Palmolive's Fabuloso scent, in our sales and category management teams' effectiveness, partnering with our retail customers. In fact Hefty Fabuloso helped drive Hefty Waste & Storage passed $1 billion in annual retail sales for the first time in the quarter. Cooking and baking results are also seeing a substantial benefit from new products, strengthening our market position, bringing us into new adjacencies and expanding the scope of our sustainable offerings. Notable Reynolds innovations include Reynolds Wrap every day non-stick foil, Reynolds Wrap 100% recycled foil and Reynolds Kitchens unbleached and compostable parts of paper.

In tableware ECOSAVE is now the number one sustainable brand in disposable tableware according to IRI. An innovation and store brands also contributed to our strong performance across RCP categories, including share gains for our Presto unit and private-label food bags. I also hope that you saw the recent release of our ESG scorecard. The scorecard provides baseline metrics for evaluating our performance against the goals we announced in April. Development and expansion of sustainable products is integral to our business.

We've introduced numerous sustainable product solutions and I have more in the pipeline for introduction in 2022. We're also on track to achieve our goal of a sustainable option all product lines by 2025. Our fourth growth driver is expanded manufacturing and supply chain capabilities. The capacity additions we undertook last year have allowed us to maintain strong market shares and retailer in stock for most of our products remain well above pandemic-related lows. These and other improvements to our manufacturing and supply chain capabilities position us well in our categories. Having said that, we're not immune to the staffing and logistics related pressures across the economy and we're actively working to minimize related disruptions to production and shipment of our products.

Before I pass the call over to Michael, I'd like to leave you with the following: our business remains strong and we have a history of dependable volume earnings and cash flow. We have the brands, the product portfolio, the category management team, the manufacturing and supply capabilities, the pricing actions, the cost savings, and most of all the people to position us for substantial improvement in earnings growth when inflation moderates and over the long-term. I look forward to our future growth and success for our company, our partners and our shareholders.

With that, over to you, Michael.

Michael Graham -- Chief Financial Officer

Thanks, Lance and good morning everyone. I'll briefly review the third quarter results then turn to our outlook and capital allocation priorities. Revenues increased 10% on top of the record third quarter revenues in 2020, reflecting pricing to recover increased costs strong underlying demand across our business and approximately 2 percentage points from a one-time sale of excess raw materials. Adjusted EBITDA was $132 million, down 31% to prior year as price increases lag increases in material, labor and logistics costs, which was partially offset by lower SG&A. Adjusted earnings per share for the quarter was $0.33.

Turning to our segment results for the third quarter, there were three main drivers of our year-on-year performance, strong underlying demand for our categories and product portfolio, price increases, which lagged further commodity cost increases and higher labor and logistics costs along with increased staffing and logistics challenges. In Reynolds cooking & baking net revenues grew 15% with 11 percentage points coming from price increases with the remainder, driven by a one-time sale of excess raw materials.

Adjusted EBITDA decreased 11%, as price increases lag the pace of commodity cost increases. Excluding the benefit of the one-time raw material sale, the underlying volume was down 2%, due to the lapping of last year's increased consumption.

For Hefty Waste & Storage net revenues grew 13%, driven by price increases and a 2% volume increase. Adjusted EBITDA decreased 43% as increases in material and labor costs outpace price increases, partially offset by higher volume. Volume was up as household, demand remained strong in our waste bag business continue to benefit from innovation.

For Hefty Tableware, net revenues increased 2%, driven by price increases partially offset by a volume decline of 4%. Adjusted EBITDA decreased 42%, as price increases lag increases in material, labor and logistics costs. We also saw labor shortages at third-party suppliers continue to adversely impact volume, which more than offset the continued strength from higher everyday usage, social gatherings and innovation.

Finally for Presto Products, net revenues grew 11%, driven by price increases slightly offset by a 1% volume decline. Adjusted EBITDA decreased 50%, as price increases lag increases in material, labor and logistics costs. Presto volume was down 1%, reflecting import delays in lower business to business product sales for the quarter, partially offset by improving food bag category trends and improved Presto Private Label food bags share.

Now to our guidance, which we have updated versus our previously disclosed guidance followed by a few additional comments on our outlook. We continue to expect high single-digit revenue growth for the fiscal 2021, underpinned by pricing at-home consumption increases in social gatherings, innovation and retail replenishment. We estimate 2021 cost pressures to be in excess of $450 million and have updated our outlook to reflect these pressures. Rates for resins have not eased since July as previously forecasted and alumina rates are higher versus July levels as well.

Labor and logistics costs have also exceeded forecast since July. The details of our guide for fiscal year 2021 are as follows: net revenues to grow in the high single-digits, adjusted net income to be in the range of $321 million, $336 million, adjusted EBITDA to be in the range of $590 million to $610 million, adjusted EPS to be in the range of $1.53 to $1.60, capital spending of approximately $145 million, which includes $25 million for the completed purchase of a manufacturing facility we previously leased. And net debt to be approximately $1.9 billion at December 31st 2021.

For the fourth quarter, we expect revenue growth in the mid to high teens, driven primarily by recent price increases and anticipated volume above Q4 2020 levels. And we expect sequential margin improvement, but with continued short-term earnings pressure, primarily driven by price increases implemented during the third quarter, lagging increases in commodity, labor and logistics costs. We also seeing progress mitigating staffing, third-party manufacturing and logistics-related disruptions.

The details of our fourth quarter guide are as follows: net revenues to grow in the mid to high teens on $888 million in the prior year. Adjusted net income to be in the range of $93 million to $108 million, adjusted EBITDA to be in the range of $170 million to $190 million and adjusted EPS to be in the range of $0.44 to $0.51. We plan to provide our guidance for 2022 with the announcement of fourth quarter results in February. Nonetheless, I thought it would be helpful to provide an update on some of the items we reviewed last quarter.

In the area of pricing as Lance said our fourth around pricing to offset additional cost increases is being implemented across RCP. The majority of the increases have been announced and go into effect in January. Assuming current rates of resin and aluminum hole, we will fully recover these higher commodity costs through pricing actions for Reynolds cooking & baking, Hefty Tableware and Presto by the end of the first quarter of 2022. We could also see ongoing unfavorable gap between commodity costs and pricing for Hefty Waste & Storage moderate, if we announce additional waste bag pricing or resin rates are lower than we are forecasting.

We're planning to return to a more typical level of trade, promotion and advertising in 2022. Investing in revolution cost savings programs is being accelerated and it remains a major source of our funding for growth. We continue to expect more than 200 basis points of EBITDA margin from revolution of cost savings in 2021 and expect to grow revolution dollar cost savings again in 2022. We're investing approximately $25 million in automation related projects in 2021 and plan to invest more than double that in 2022. We expect spinning automation on our Louisville operations to contribute significantly to the increase at a total of nearly $50 million in spinning over a three years of 2021 through 2023. This project is typical automation related projects, providing an estimated payback of less than three years.

Numerous additional automation and intelligence factory projects are also underway across RCP, including the installation of a high-speed cutting equipment for cooking & banking, line upgrades for Hefty Waste & Storage and Presto. Robotics and related line expansions for Hefty Tableware and other improvements in equipment and line efficiencies throughout our operations.

Now before I turn the call back over to Mark and your questions, I'd like to leave you with the follow: As Lance reviewed our business remains strong, demand for our products is up, our market shares are strong and our manufacturing and supply chain capability is strong and we are investing to strengthen them further. Nonetheless, it is important to remember that the environment for staffing and logistics-related services has become more challenging. In material cost increases have been difficult to predict with accuracy.

We consider this year's profit pressure is temporary and expect sequential improvement in profitability in the fourth quarter. We also expect to return to pre-pending pandemic levels of profitability when inflation moderates. As I previously said, we will fully recover these higher commodity costs through our pricing actions for Reynolds Cooking & Baking, Hefty Tableware and Presto by the end of the first quarter of 2022, assuming current rates for resin and aluminum whole. And we remain committed to strong cash generation and disciplined capital allocation, investment in internal growth and upgrades to our cost structure remain our top priority. We continue to focus on deleveraging with a target ratio of 2 times to 2.5 times EBITDA. We plan to continue returning excess cash flow to shareholders through dividends and we recently announced a quarterly dividend of $0.23 payable November 30th, 2021, and we continue to opportunistically pursue bolt-on M&A in our categories and adjacencies domestically and internationally.

With that, I'll hand the call back over to you, Mark. Thank you.

Mark Swartzberg -- Vice President of 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?

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Nik Modi with RBC Capital Markets. Please proceed with your question.

Nik Modi -- RBC Capital Markets -- Analyst

Yes. Thank you. Good morning, everyone. I just had a quick clarification question, just on the raw material sale, if you could just provide some details around that. And then the broader question is just on the price elasticity. You talked about, I haven't done a study I would be curious to hear, kind of, what the conclusion was of that. And how do you see that consumer [Technical Issues] as they kind of draw down all the cash that they've been sitting on given all the stimulus as we kind of move into 2022? How do you think that's going to manifest in just the receptivity of pricing generally, because it's not just in your categories, it's basically every category? Thanks.

Michael Graham -- Chief Financial Officer

Yes, I'll take the first part of that on the raw material. So we found ourselves long on raw materials and we really don't speculate in this space. And so we decided to sell off those raw materials, we got market prices of that, it was a nominal increase from a margin, I mean from a nominal level from a margin perspective. But overall, it was the best thing to do and it's a prudent thing to do at that point in time.

Lance Mitchell -- President and Chief Executive Officer

And I'll take the elasticity question, Nik, we've done elasticity studies over the course of the history of our company and they've always come back as these categories have relatively low elasticity. There is no question we're in a dynamic environment now, that's different than we've seen historically. And it did come back again with low elasticity, but as I said it's dynamic, so we're going to watch it very closely and we'll course correct and adjust as necessary, but stimulus packages in consumer spending, while it's factored into that study. It's not necessarily able to predict it any better than any of us. So we'll have to course correct, if necessary as we go forward.

Nik Modi -- RBC Capital Markets -- Analyst

And Lance, if I could just follow-up, do you see the competitive situation playing out as you would have hoped? Or is there still some disconnect in terms of you guys moving versus some of your competitors across your categories?

Michael Graham -- Chief Financial Officer

Well, we've taken pricing across 85% of our products, as Michael indicated. So as Michael also said the recovery in waste bags will be dependent upon the easing of commodity grades, additional pricing or both. There is numerous factors we're going to consider in making those decisions, consumer demand, category strength, retail price points and of course working with our retail partners and the competitive environment. Right now, our focus on waste bags is demand is exceeding our increased waste bag capacity, currently. So the result, our focus is on improving case and service to our retail partners.

Nik Modi -- RBC Capital Markets -- Analyst

Great, thanks.

Operator

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

Rob Ottenstein -- Evercore -- Analyst

Great, thank you. Just first a point of clarification, did I hear you say that you expect to get back to, kind of, normal margins at the end of Q1 2022 assuming that no further cost increases and I suspect it's market share gains that is driving that conviction. So that's just kind of follow-up question. And then if we stand back and think longer term, once we get into a normal environment given all the gains that you've gotten from revolution, given your market share trends, given what looks like sustainably higher consumer demand. Is there any reason why you won't be able to earn materially more than what you did in 2019? When you get to a more stable environment? Thank you.

Michael Graham -- Chief Financial Officer

Yes, so just to clarify, when we're talking about recovery, our overall intent is that we feel by the end of Q1 that will have full recovery from a -- on the commodity increases that we've seen. So that was -- it was not intended to be margin related it was full recovery from a margin cost standpoint, obviously labor logistics continue to be a bit of a challenge, and we're still working through that, but we think we have a good plan to address that as well.

Mark Swartzberg -- Vice President of Investor Relations

And Mike and Robert, this is Mark. Just to add to what Michael said that full recovery comment pertain to Reynolds Cooking & Baking to Tableware and to Presto.

Rob Ottenstein -- Evercore -- Analyst

And what's going on with the rest of the business?

Michael Graham -- Chief Financial Officer

While the rest of business is the Hefty and I think we've talked about that quite a bit in that Hefty portfolio, we have to be very mindful of what competition is doing from a pricing standpoint and so at this point in time there is no further actions that were taken around pricing.

Lance Mitchell -- President and Chief Executive Officer

I'd just to add to that, we've implemented mid single-digits in the first quarter on Hefty waste bag; 9% increase in August; together, representing a 14% increase in those products.

Rob Ottenstein -- Evercore -- Analyst

And the competition's lagging?

Michael Graham -- Chief Financial Officer

Yes.

Rob Ottenstein -- Evercore -- Analyst

Great, thank you very much.

Operator

Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.

Lauren Lieberman -- Barclays -- Analyst

Great, thanks. I was curious about private label and given the breadth of your portfolio, how you are thinking about or actually already communicating with retailers about if there is an inevitability to the pinch on the consumer wallet from such widespread inflation does cause some trade down. I just would love to hear how if it's in prior cycles, but what you can offer in terms of how your portfolio can fair given the private label participation that you have?

Michael Graham -- Chief Financial Officer

Yes. As we've talked about our numerous occasions, Lauren over the last couple of years since we went public. These categories through these cycles have remained very stable from a percentage of brands and store brands and part of that, because it's already highly penetrated. Of course we closely watch this and manage price gaps, but our study show as part of the elasticity models. And in the current environment that should hold going forward as well.

Lauren Lieberman -- Barclays -- Analyst

Okay, that's great. And then my follow-up was I do recall having -- you guys having spoken in the past about there being like a magic price point in foil, this 49 maybe, but there actually was an element at least in the foil business of there being a magic price point that elasticity, kind of, kicked in above that level. They're incredibly increased demand in that category, so I'm just curious if you think that magic price point conversation goes out the window. Because of the greater usage household penetration you've had in that category through the pandemic?

Michael Graham -- Chief Financial Officer

Well, we've gone far enough past that price point now with the two price increases that we've already announced and implemented Reynolds Wrap and that price point was $3.99, we've long surpassed that in the last couple of months and you can see from the category and our share data that it's continue to be very strong. So out the window, I think is a great pharma, it's a very inflationary environment now and that was different when we crossed that price point previously.

Lauren Lieberman -- Barclays -- Analyst

Okay, that's great. Thanks so much.

Operator

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

Mark Astrachan -- Stifel -- Analyst

Yes, hey, thanks, and morning, everyone. I guess just to start as a follow-up, could you maybe comment on where price gaps are today and whether private label is moving generally in unison with the multiple rounds of price that you've taken across relevant categories?

Michael Graham -- Chief Financial Officer

Yes, as you know, we have a large percentage of our business is also store brands and the pricing that we've taken on ours, as well as competitive store brands have been consistent with the brands. So in most categories there has been a consistent price gap maintained in most of these categories. The exception maybe waste bags that we're watching that closely. We have taken out, as well as we've seen competition in store brand waste, bags take price increases more than the brands.

Mark Astrachan -- Stifel -- Analyst

Got it. Okay, that's helpful. And then, broadly speaking, and maybe some of this is a, is unknown, be, is a bit optimistic. But if we kind of look forward to next year and say in a perfect world that spot rates for key inputs either stay where they are even come down. Could you just remind how to think about this? How much of the pricing it will before around I guess by beginning next year in key categories. How much of that sustains -- retains versus how much is given back in just reductions of price increase, promotions, etc?

Michael Graham -- Chief Financial Officer

Yes, that's a very -- it's a very dynamic question, because it really depends on where commodities are at that point, but as we've said historically the price increases that we take of commodity stabilizes or retreat modestly. We don't reflect that in price decreases. And in this environment there are other offsets that we've got to consider. We have higher labor costs, we have higher logistics costs, we have higher input costs, including energy and packaging. And all of those have got to be considered as part of the pricing equation as we go forward. Even if commodities retreat.

Mark Astrachan -- Stifel -- Analyst

Got it, OK. Thank you.

Operator

Thank you. [Operator Instructions] Thank you. Our next question comes from the line of Bill Chappell with Truist Securities. Please proceed with your question.

Bill Chappell -- Truist Securities -- Analyst

Thanks, good morning. Just as expected another question on commodities and input inflation, just trying to understand how much of it right now is, I guess specific to the company, thinking more like aluminum. And how much of it is also more what you would you view as transitory, we had heard some other companies talk about, kind of, Hurricane Ida affecting resin prices and that would -- and shortages and stuff like that. I don't think you really alluded to that, but just going to maybe as you look at your basket, I mean, do you feel that does probably start to ease versus some of it being more, I guess longer lasting than anything else?

Michael Graham -- Chief Financial Officer

I think it's very, very difficult historically to accurately predict forward commodity costs. If we were able to do, so we price to that forecast versus the actual costs and that's what we're doing across the vast majority of our product portfolio. One thing is pretty certain, resin is not going to retreat back to pre-pandemic levels. We do see the modernization of stabilization occurring, but in resin, but we're not predicting a big pullback. We will watch it closely, of course, and I talked to all the major resin suppliers personally and they're not predicting a major pull back either. On aluminum, it's been very dynamic and volatile. It is almost doubled at one point versus prior year. It's retreated modestly in the last week, but it's up substantially versus 2020 levels.

Bill Chappell -- Truist Securities -- Analyst

Okay, great. And then just the follow-up, kind of, on the upcoming holiday season. I feel like a year ago you felt like the fewer family outings would -- I think it was maybe have a benefit just because a fewer -- big get together's and lots of smaller family outings would be a lift for your products. So how does that -- we character of that coming to this holiday season. I mean should there be this greater occasion usage or just how you're looking at that from a volume perspective? Thanks.

Michael Graham -- Chief Financial Officer

Yes, you're correct. We did predict that. That our prediction turn out to be incorrect. We did not see the, kind of, holiday gatherings we historically seeing particularly for the cooking and baking product in 2020 and so what we're seeing in '21 is a return to the more normal holiday gatherings in 2021.

Bill Chappell -- Truist Securities -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Andrea Teixeira with J.P. Morgan. Please proceed with your question.

Andrea Teixeira -- J.P. Morgan -- Analyst

Good morning. So you lowered the EPS for the fourth quarter, but your top line came in well ahead in the me too -- so high teens. So can you break down a bit between volumes and pricing. I saw the increase of inventory, so it seems that you are prepared to meet the higher demand, but given the puts and takes of each of the divisions, I think Tableware has this comps and Cooking & Baking, as well in terms of volumes, but you have tough comparisons in the Hefty Waste & Storage. So, how can we think about added to the price increase that you took in that division? And how to think as you just -- as we just discussed with you now from a holiday perspective? How to think about the puts and takes? Thank you.

Michael Graham -- Chief Financial Officer

Yes. So I would -- you'd probably recall, I did say that about $450 million, we've seen a $450 million increase in materials logistics and related cost, now $50 million of that is higher than what we anticipated in early August, and so that $50 million is really driven by additional labor and additional aluminum costs, logistics cost. If I broke that out, so about $30 million in that $50 million is materials in the rest of it is labor and logistics. So that's the, really the driver of why that, that's challenging us further.

Andrea Teixeira -- J.P. Morgan -- Analyst

Right. Yes, no, that's helpful, Michael. But then, in terms of the topline, kind of the mid-teens and high teens, I think came in way ahead of consensus and our numbers. So what informed view in terms of demand of the top line growth. Are you seeing early signs from your retailers that they are taking in way more inventory for Cooking and for Tableware normalizing? How we should be thinking into get that into that number for the fourth quarter?

Michael Graham -- Chief Financial Officer

Yes, before he answers that Andrea. Could I just clarify, are you asking about Q4?

Andrea Teixeira -- J.P. Morgan -- Analyst

Yes, Q4.

Lance Mitchell -- President and Chief Executive Officer

Okay, all right. Go ahead. MG?

Michael Graham -- Chief Financial Officer

I thought you were talking about the top line for Q3 were a lot of that was driven by the excess aluminum sale.

Andrea Teixeira -- J.P. Morgan -- Analyst

Yes, no worries. Sorry if I wasn't clear, it's more about like the forward looking the first quarter. It's in -- it came in ahead of course you have the pressure that led to your EPS being lowered. But on the topline, what is your view...

Michael Graham -- Chief Financial Officer

So bottom line, I think is time, right. So there is no real change in the full-year, right? So it's basically just about a matter of timing and shift between Q3 and Q4.

Andrea Teixeira -- J.P. Morgan -- Analyst

Okay. And in terms of demand, you're not seeing what you just discuss that the holiday season or inventory levels at the retail, how we should be thinking of that?

Lance Mitchell -- President and Chief Executive Officer

It's still early in the quarter, but our guide holds that we're seeing strong demand in the quarter, compared to prior year, particularly in Cooking & Baking. But what Michael is saying is the headwinds on higher commodity costs and logistics costs is approximately $50 million more than we've seen in early August.

Andrea Teixeira -- J.P. Morgan -- Analyst

That's fair. I'll pass it on. Thank you.

Operator

Our next question comes from the line of Wendy Nicholson with Citi. Please proceed with your question.

Wendy Nicholson -- Citi -- Analyst

Hi, good morning. My first question has to do with the comment about the sale of the excess raw materials. I don't know if I've ever heard that before and it just strikes me as sort of a strange thing. Given the scarcity of raw materials and whatnot could. Can you just give us a little bit more color of what that was? Was it a mismatch in terms of raw materials, you had on hand versus what you were selling? Or how did that come about?

Michael Graham -- Chief Financial Officer

Yes, we go, primarily in the loan space and over a period of time we accumulated more inventory in that overall space, than we anticipated, right? And so typically when we have a situation where we have excess amount. If the market conditions are such that we could sell it at a margin even if it's a low margin, we'll exit that, because we don't want to get in the practice of speculating and holding on excess levels of inventory that can be used in a reasonable amount of time.

Wendy Nicholson -- Citi -- Analyst

Got it. Okay, fair enough. And I guess just longer term and I apologize for the second question, but I think I'm near the end of the queue. So hopefully that's OK, just Michael what you said about sort of commodity environment and resin prices are coming down, anytime soon. And how you're not taking pricing in Hefty sort of given the competitive environment, I'm just curious, if you take a step back for Reynolds in particular just specifically you? How long do you think it will take or is it even in the cards for you guys to get back to, kind of, a high '20s, gross margin has something structurally changed? Do you think, I mean, I can't imagine you or any of your competitors want to be structurally lower gross margin going forward. But if you're not taking pricing to insulate margins in Hefty. What is the take for you to get back to that high '20s gross margin, is that a two-year event three-year event or has something just changed? Thanks.

Lance Mitchell -- President and Chief Executive Officer

Before, Mike will answer that one thing I will just state is the math is going to change with these numerators and denominators moving around so much. So when we talk about high '20s, we need to calibrate less on percentages a more on actual dollars. Michael?

Michael Graham -- Chief Financial Officer

Yes, so overall, I believe we're taking all the right actions to return to pre-pandemic profitability, right. We've talked about the fact that our pricing actions are in place to recover by the end of first quarter assuming that we don't see further increases in material costs. We're also taking great extensive cost reductions across the portfolio and we're managing within our existing footprint, which is pretty critical right, and that's underpinned by automation, innovation and continue to -- as well as continued demand.

Currently, there are three notable headwinds that we have to overcome Waste & Storage resin costs in excess of current levels of pricing we've talked about that, the labor market remains tight and then there's tight logistics conditions driving the efficiencies and rate increases. So we have to overcome those, but overall I think we are well positioned and we're taking all the right steps.

Lance Mitchell -- President and Chief Executive Officer

And so just to put a fine point on that when inflation stabilizes and the commodity costs stabilize. We will return to the dollar gross margins, because of the actions we've taken in prices and increases and cost reductions.

Wendy Nicholson -- Citi -- Analyst

Terrific, thanks so much.

Operator

[Operator Instructions] Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Peter Grom -- UBS -- Analyst

Hey, good morning everyone. I hope you are doing well. So maybe just following up on Wendy's question regarding the margin recovery. I know you mentioned 4Q margin should improve sequentially, but coming from down 200 basis points, you know that's a pretty wide frame. So can you maybe help us understand the magnitude of the improvement? And looking out the '22, but when do you actually anticipate gross margin expansion given the comments you made around pricing offsetting commodity for three of the four divisions?

Michael Graham -- Chief Financial Officer

Yes, I want to be -- I want to go back to it, Lance had around gross margins, right. So overall, you know, you got to factor in the fact that, you know, there is a math equation right all the pricing that we've taken. So that's going to continue to challenge us from a gross margin perspective, right? So I just can't overemphasize that, if you guys are building your models purely on the margin perspective. You have to be cognizant of that.

Lance Mitchell -- President and Chief Executive Officer

And I'll just add that all through fiscal 2021, we've been taking price increases sufficient to recover commodity increases, but it's been on a lag and assuming the current commodity costs where they are right now. Our Q1 2022 pricing actions will see us fully recovered on 85% of our business and a similar state and it could have been made in August with regard to Q3 pricing actions, but obviously commodities moved up from that point. So when they stabilize as I said a moment ago, we will have recovered.

Peter Grom -- UBS -- Analyst

Got it and then maybe just asking on margins more around SG&A, it's clearly been a nice tailwind this year. So just in theory like as if gross margin should improve like how should we think about some of the between the line spending coming back? Or do you think you kind of how you found some efficiencies that should gross margin improve or gross profit dollars improved that you would actually see that flow through to earnings?

Lance Mitchell -- President and Chief Executive Officer

No, I would say that 2021 was primarily a lot of belt tightening that we did and it's not necessarily something repeat in 2022 and of course we'll provide that in more detail with our guide in 2022.

Peter Grom -- UBS -- Analyst

Great, thank you so much.

Operator

Our next question is a follow-up from Rob Ottenstein with Evercore. Please proceed with your question.

Rob Ottenstein -- Evercore -- Analyst

Great, thank you very much. Can you talk a little bit about the competitive dynamics on the waste bags side and you compare that of how it's been over the prior years, it seems that there is a little bit of a change in that dynamic. I don't know, if whether it's around competitors looking to gain share keep share differences in what's going on in the channels or innovation, but it just -- it kind of feels like there's something a little bit different going on. So maybe you can, kind of, help us understand that a little bit better. And why that part of your business should be lagging in terms of margin recovery?

Lance Mitchell -- President and Chief Executive Officer

Well, as I said we implemented two price increases that added up to 14% in the Hefty waste bags. And as a result, the price gaps while they vary by channel and most channels they've narrowed, we continue to watch this category very closely. And as I also said where demand is exceeding our increased waste bag capacity. So our focus right now and Hefty waste bags is improving case service to our retail partners.

Rob Ottenstein -- Evercore -- Analyst

Great. Thank you.

Operator

Thank you, ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Lance Mitchell for closing remarks.

Michael Graham -- Chief Financial Officer

Thank you for your questions. We appreciate your time this morning. Our revenue is growing and we expect accelerating revenue growth and sequentially improving margins in the fourth quarter driven by consumer demand, pricing and innovation and our expanded manufacturing and supply chain capabilities. I want to particularly thank our employees for continuing to follow prevention measures and putting safety first as we grow our business in this exceptional time. Thank you and stay safe.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Mark Swartzberg -- Vice President of Investor Relations

Lance Mitchell -- President and Chief Executive Officer

Michael Graham -- Chief Financial Officer

Nik Modi -- RBC Capital Markets -- Analyst

Rob Ottenstein -- Evercore -- Analyst

Lauren Lieberman -- Barclays -- Analyst

Mark Astrachan -- Stifel -- Analyst

Bill Chappell -- Truist Securities -- Analyst

Andrea Teixeira -- J.P. Morgan -- Analyst

Wendy Nicholson -- Citi -- Analyst

Peter Grom -- UBS -- Analyst

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