Koppers Holdings, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Consolidated sales for the third quarter were $554.3 million, a record third quarter. Adjusted EBITDA was $77.4 million, a new third quarter record, with a margin of 14%. Diluted earnings per share were $1.09, and adjusted earnings per share were $1.37.
• Safety Initiatives: In 2024, 25 of 47 facilities operated accident-free. Leading activities increased by 5%, recordable injury rate decreased by 8.5%, and serious safety incidents decreased by 42%. The 2024 Truck Driving Championship was held, with winners honored.
• Capital Allocation: Net capital expenditures through September 30th were $55 million. Total CapEx for 2024 is forecasted to be $80 million. $42 million was spent on share repurchases year-to-date. A quarterly dividend of $0.07 per share was declared. Net debt was $936.4 million, and the net leverage ratio was 3.6x.
• Business Segments:
  • PC: Full-year EBITDA estimate for the segment was upped to $140 million midpoint, supported by industrial demand and storm response despite market share loss.
  • UIP: Soft demand but helped by storm response shipping ~40,000 poles. Australian pole business had a strong quarter.
  • Railroad: Recognized $20 million in higher price and $4 million in cost savings. Expected EBITDA increase of $9-10 million.
  • CM&C: Profitability improved, working on raw material contracts. Plan to reduce capital expenditures.

Segment Performance

• Railroad and Utility Products and Services (RUPS): Third quarter sales reached $248 million, a record, up 6% from the prior year. Adjusted EBITDA was $25 million with a 10% margin.
• Performance Chemicals (PC): Third quarter sales were $177 million, a slight decline from the prior year. Adjusted EBITDA was $40 million with a 22.6% margin. Affected by Brown Wood sales being intercompany and higher raw material costs.
• Carbon Materials and Chemicals (CMC): Third quarter sales were $130 million, down 5.5% from the prior year. Adjusted EBITDA was $13 million with a 9.8% margin. Impacted by lower sales prices and volumes.

Guidance

• 2024: Consolidated sales were expected to be approximately $2.1 billion, flat year-over-year. Adjusted EBITDA was forecasted to be in the range of $270 million to $275 million. EPS was expected to be in the range of $4.25 to $4.45. Capital spending was projected to be $80 million.
• 2025: PC expected market share loss but supported by housing and repair trends. UIP expected higher volumes and full benefits from the Brown Wood acquisition. Railroad expected higher sales volumes and pricing. CM&C expected improvement with cost reductions. Targeted adjusted EBITDA was over $285 million, with net leverage expected to drop below 3x.

Risks

• Market Volatility: Fluctuations in raw material prices, sales volumes, and market demand pose risks.
• Safety Incidents: Continued risk of safety incidents despite progress; need to maintain Zero Harm efforts.
• Interest Rate Changes: Impact on interest expense, especially with debt related to acquisitions.
• Competitive Pressures: Share losses in PC due to renewal of customer agreements and competitive actions.

Question and Answer

Q: Could you go into more detail about competitive issues and share losses in Performance Chemicals?

A: Renewals of customer agreements led to share erosion, but net overall still picking up some share from other customers.

Q: Can we assume contemplating sale or shutdown of operations could involve significant restructuring?

A: Evaluating smaller businesses and capacity adjustments, considering short-term and long-term actions.

Q: How would you prioritize the acquisition pipeline across business lines?

A: Priority on the utility side, then Performance Chemicals preservative business; rail and CMC less focus.

Q: Can you talk about the sustainability of SG&A and the impact of interest rate cuts?

A: Focus on resizing and streamlining SG&A; interest expense impact on ~$500 million of hedged debt.