Koppers Holdings Inc. Provides May 2020 Business Update
Koppers Holdings Inc. (“Koppers”), an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds, reported its regularly scheduled monthly business update and will conduct a conference call and related webcast at 11:00 a.m. Eastern Time. This is part of an ongoing series to share recent developments and highlight strategic initiatives to the investment community. The company plans to report results for the quarter ending June 30, 2020, during its next monthly business update on July 27, 2020.
As part of Koppers overall strategic plan, the company continues to identify organic opportunities to realize top-line growth, improve profitability, and reduce risk through new commercial development opportunities, greater market share penetration, business portfolio realignment, operating network optimization and strengthening its balance sheet.
In line with its strategy, Koppers recently agreed to a long-term contract amendment with a Class I railroad customer of treated wood crossties, switch ties and other types of lumber that will extend its market opportunities.
In addition, as part of its network optimization assessment, Koppers plans to further consolidate its treating footprint by ceasing production activities at its treating facility located in Denver, Colorado. The company plans to ramp down production at the Denver facility over the next two months as it transitions production to another crosstie-treatment facility and has targeted August 2020 for discontinuing activities at the Denver location.
The company expects this action to result in total pre-tax charges to earnings of up to $13 million through June 2021, which includes approximately $2 million of non-cash accelerated depreciation to be recorded through August 2020.
The closure costs as well as anticipated future investments to upgrade and modernize parts of its treating network will be primarily funded through proceeds from the sale of non-core assets, which includes the Denver facility as well as properties related to certain previously announced plant closures. Also, the upgrades contemplate an increase to treating capacity at a yet to be determined facility to accommodate potential future market share gains.
President and CEO Leroy Ball said, “I take seriously the decision to cease operations at any of our plants and deeply regret the impact that the closure at our Denver facility will have on employees that have dedicated their careers to strengthening Koppers reputation. I want to thank them for their service, and also pledge to provide assistance to employees in a way that helps position them for ongoing success whether it be in retirement, or as they transition to careers either within or outside of Koppers.”
Executive Vice President and Chief Operating Officer James Sullivan commented, “I want to thank all those involved for their hard work, which allowed us to reach a mutually beneficial agreement. As a result of this amendment, we plan to significantly modernize one of our facilities for a minimal net investment, which should provide even greater quality assurance and security of supply for a key customer.”
May Sales by Business Segment
For May 2020, consolidated sales were $144.1 million compared to $146.6 million in the prior year period, representing a decrease of $2.5 million, or 1.7 percent. The decrease was driven by lower sales from Carbon Materials and Chemicals (“CMC”), partially offset by higher sales from Performance Chemicals (“PC”) and Railroad and Utility Products and Services (“RUPS”). Sales for the month were negatively affected by soft demand in markets served by CMC brought on by the global economic shutdown as a result of the COVID-19 pandemic. Sales in CMC were also negatively affected by lower average pricing of certain products tied to oil pricing benchmarks, which were significantly lower than the prior year period. At the same time, residential wood treatment preservatives as well as industrial wood treating activities in the United States continued to see strong demand.
– Sales for RUPS of $67.6 million increased by $0.1 million, or 0.2 percent, compared to sales of $67.5 million in the prior year month. In general, demand levels held steady and sales volumes were slightly higher than prior year for untreated crossties as well as utility poles, partially offset by weakness in the rail joints business.
– Sales for PC of $47.1 million increased by $4.9 million, or 11.5 percent, compared to sales of $42.2 million in the prior year month. The year-over-year increase was primarily due to record sales volumes in the United States driven by demand pull-through from home improvement retailers, partially offset by weakness in international markets, particularly Europe.
– Sales for CMC of $29.3 million decreased by $7.5 million, or 20.4 percent, compared to sales of $36.8 million in the prior year month. The year-over-year decrease was driven by weak end market demand and lower average pricing due to low oil prices. Beginning in 2020, Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”) results are classified as discontinued operations for the current year as well as the comparable period in 2019 due to the pending divestiture.
– Capital expenditures for May 2020 were $6.7 million, compared with $2.7 million in May 2019. For the year-to-date period ended May 31, 2020, capital expenditures were $21.0 million compared with $16.8 million for the prior year period.
Mr. Ball commented, “Our classification as an essential business and our diversified end markets, centered around the common focus of wood protection, continued to serve us well in the month of May. While CMC continued its struggles due to weak steel, aluminum, and auto markets, our RUPS and PC businesses both posted sales at or better than May 2019. Sales for PC in North America set a monthly record for Koppers as consumers continue to work on projects to beautify their home and outdoor spaces while our treating business in the RUPS segment again generated solid sales despite the pandemic.”
Pending Divestiture of Koppers (Jiangsu) Carbon Chemical Company Limited
In February 2020, Koppers announced that it entered into a definitive agreement to sell Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”), a 75-percent owned China coal tar distillation business with the remaining 25 percent owned by Yizhou Group Company Limited.
The KJCC facility, located in Pizhou City in Jiangsu Province, was shut down in the fourth quarter of 2019 for planned maintenance and remained closed through much of March 2020 due to concerns related to COVID-19. The plant resumed operation in late March and suspended production again in early May to accommodate a previously scheduled maintenance turnaround at a major customer’s facility.
The company anticipates the closing of the sale to occur during the timeframe of July 2020 to mid-August 2020. Koppers expects to realize approximately $65 million of net cash, after taxes and expenses, and plans to apply the cash proceeds toward debt reduction.
Debt and Liquidity
As of May 31, 2020, Koppers was on target to be within its financial covenant metrics at the next remeasurement date of June 30, 2020. Likewise, the company expects to maintain an appropriate level of liquidity to operate its business without undue hardship. At March 31, 2020, Koppers had $185 million of liquidity. At this time, the company does not plan to amend the company’s current credit facility as the current operating and cash flow forecasts appear adequate to maintain appropriate cushion in its financial covenants.
June 2020 Quarter Outlook
Koppers expects that sales for the quarter ending June 30, 2020, excluding any sales generated from KJCC, will be approximately $410 million to $420 million. By comparison, sales for the prior year period, excluding KJCC, were $443.9 million.
Accordingly, the adjusted earnings per share (“EPS”) for the quarter ending June 30, 2020, is forecasted to be in the range of $0.70 to $0.85, compared with adjusted EPS of $1.14 in the prior year.
Mr. Ball commented, “While visibility is still limited and end markets remain highly uncertain, I believe we will finish the quarter with adjusted earnings per share much better than what was feared back in March. The durability and resiliency of our business model centered on wood technology and built upon our purpose of ‘Protecting what Matters and Preserving the Future’ is demonstrating the critical nature of the goods and services we provide. While the new normal is still being sorted out, I am confident that Koppers will continue to play an important role in building and beautifying the global infrastructure in whatever our world looks like moving forward.”
For the full monthly update, click here.
Koppers, with corporate headquarters in Pittsburgh, Pennsylvania, is an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds. Our products and services are used in a variety of niche applications in a diverse range of end markets, including the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber, and construction industries. Including our joint ventures, we serve our customers through a comprehensive global manufacturing and distribution network, with facilities located in North America, South America, Australasia, China and Europe. The stock of Koppers Holdings Inc. is publicly traded on the New York Stock Exchange under the symbol “KOP.”
Michael Zugay – Investor Relations – (412) 227-2231
Source: Koppers Holdings, Inc.