Wrapped in Sustainability

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The pandemic triggered a surge in , prompting a scramble for innovative delivery solutions. Amongst this evolution, the need for sustainable packaging emerged as a priority for companies aiming to reduce industrial emissions. Ranpak Holdings, a provider of eco-friendly packaging, thrived amidst this landscape, capitalizing on pandemic-driven growth. However, in the face of rising inflation and a weaker macroeconomy, the company is now wrestling with declining consumption and squeezed margins. Can Ranpak navigate the shifting tides and bounce back to its growth trajectory?

Paper Over Plastic 

Headquartered in Concord, Ohio, Ranpak Holdings is one of a handful of companies in the rapidly evolving packaging industry, valued at over $8 billion. The company specializes in environmentally friendly, paper-based packaging solutions, which serve the e-commerce industry's needs, providing protective packaging for shipping goods worldwide. With a robust network of production facilities and offices from Reno, Nevada to Shanghai, and over 600 issued patents, the company offers an extensive suite of packaging solutions – Void Fill, Cushioning, Wrapping, and Automation Solutions – to over 33,000 business customers across 50 countries.

In the global protective packaging industry, paper solutions make up 15% of the market, of which Ranpak claims approximately 60% market share. Major customers, including industry giants like Amazon, IKEA, and Walmart, rely on Ranpak's solutions, underpinning its formidable market position. The company's geographical focus spans North America and , with strategic expansion efforts underway in Asia. Ranpak also relies on an asset-light distribution model, with exclusive partnerships with distributors lasting over 15 years.

 Since going public through a SPAC, Ranpak has made a series of strategic investments to bolster its growth. First, it invested in Pickle Robot Company, leading the application of robots for the automated sorting and loading of packaged goods. Later that year, the company acquired a stake in Creapaper GmbH, inventors of grasspaper, a product that dramatically reduces CO2 emissions and water usage in the paper and packaging industry. Finally, in December, Ranpak broadened its European presence by acquiring Recycold Cool Solutions BV, a producer of sustainable cool packs made from plant-based gel.

During the same period, the company has launched several products including the PadPak Guardian and AccuFill, both novel, sustainable paper-based solutions designed for efficient packaging and aimed at the North American market. A year later, the company launched PadPak Auto-Coiler, a system replacing ecologically damaging materials like foam and plastic with sustainable paper-based cushioning. The new product launches and investments have enabled the company to stay a step ahead of competitors and maintain a stronghold over the market. 

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Pandemic Rollercoaster 

Ranpak Holdings navigated the peak of the pandemic with commendable agility, leveraging the surge in e-commerce brought about by global lockdowns and restrictions. This period of buoyancy led to a series of profitable quarters, painting a promising picture for the company. However, as economies worldwide edge towards normality, Ranpak finds itself sailing against the wind.

The robust tailwinds that previously boosted Ranpak's operations have begun to wane, replaced by formidable challenges. The spike in the consumption of goods during 2020 and 2021 is reverting, as consumers, unshackled from stringent lockdowns, now prioritize experiences and travel over purchasing goods. This shift, coupled with rising inflation eating into consumer disposable income, is causing a slump in e-commerce sales – a key arena for Ranpak.

Ranpak's hurdles extend beyond declining revenues. The company is grappling with escalating material, freight, and labor costs, exacerbated by persistent disruptions and mounting inflation. These pressures are eroding the company's margins at an unfortunate time.

High-interest expenses from debt are already straining Ranpak's financials. To mitigate these challenges, management is adopting a cash preservation strategy in the upcoming quarters. By reducing inventory and banking on the easing of inflationary pressures in Europe, Ranpak aims to weather the storm. 

Financials and Valuation 

Ranpak's net revenue slipped 1.6% year over year to $81.2 million in the first quarter of 2023, primarily due to decreases in void-fill and wrapping sales, although this was partly offset by increases in cushioning and other product sales. Adjusted for constant currency basis, the revenue increased marginally by 1.1% to $84.8 million. The net loss for the quarter was $12.4 million, a slight improvement from the $14.1 million loss reported in the corresponding period of the previous year.

Ranpak's first quarter adjusted EBITDA on a constant currency basis was $15.1 million, marking a 20.9% year-over-year decline. These figures were impacted by an array of factors, including currency headwinds, increased business sponsoring costs, a slowdown in economic activity, and the squeeze of inflationary pressures on consumer and corporate budgets.

Moving forward, the company will exercise caution given the recent dip in consumer confidence and a slowdown in industrial activity, both consequences of a higher rate environment and reduced credit availability due to banking sector stress. However, a favorable input cost environment, which has surpassed initial expectations for the year, could provide some relief from potential top-line pressures in the near term.

Due to the broader market sentiment, Ranpak's stock has seen a severe decline of 87% from last year's peak, with shares now trading around $4.28/share. This equates to a market cap of approximately $352 million and a Price/Sales ratio of 1.1x. Yet, if Ranpak continues its recovery and manages to optimize operations to improve margins, the company could potentially reach break-even and justify its current valuations.

Bottom Line 

Ranpak Holdings offers investors a unique proposition, a leader in sustainable packaging at an attractive valuation amid economic headwinds. While short-term challenges persist, like inflation and a dip in consumer confidence, it's crucial to remember the company's solid market position, extensive patent portfolio, and strategic growth through acquisitions. As the e-commerce industry moves toward using environmentally friendly solutions, Ranpak's offerings is perfectly positioned to take advantage of the increasing demand. Furthermore, the company's focus on cost structure alignment and operational efficiency provides hope for improved margins, which could ultimately help generate higher profits when revenues rebound. 

Source: Wrapped in Sustainability